NEW YORK – Jurors at the Martha Stewart (search) trial listened Wednesday to a recording in which her stockbroker told investigators he had no advance word of the bad news that sent ImClone Systems (IMCL) stock tumbling.
In the interview with the Securities and Exchange Commission (search), broker Peter Bacanovic (search) instead described what he said was a standing agreement with Stewart to sell her stock if it fell below a certain price.
Bacanovic said that a week before Stewart sold her stock in 2001, he asked her: "How low does this have to go before you're prepared to part with it?" He said Stewart did not know, so he suggested $60.
The prosecution, which introduced the tape of the Feb. 13, 2002, interview, contends the $60 story is a lie. Bacanovic's assistant testified earlier that the broker ordered him to alert Stewart that the family of ImClone CEO Sam Waksal (search) was selling.
The government claims the recording also includes lies in Bacanovic's account of meeting with Stewart after the sale. He claims they discussed Waksal but not her ImClone transactions.
Stewart and Bacanovic are each charged with lying to investigators about the ImClone sale. Stewart is also charged with securities fraud, accused of misleading investors in her own company, Martha Stewart Living Omnimedia.
Earlier Wednesday, Stewart lawyer Robert Morvillo tried to show that SEC enforcement lawyer Helene Glotzer gave biased testimony because she has a rooting interest for the government.
Morvillo also tried to draw out details of Glotzer's close work with the federal prosecutors handling the case. The SEC, prosecutors and the FBI routinely conduct joint white-collar crime investigations.
"Is it your hope that the government wins this case?" Morvillo asked.
"Yes," Glotzer said. "I believe in the case." But she stressed she was a "fact witness" who had no bias in her testimony.
Prosecutors placed Glotzer on the stand in hopes of laying the foundation for what they say are repeated lies by Stewart in 2002 about why she sold 3,928 shares of ImClone stock on Dec. 27, 2001.
Stewart told the SEC in 2002 that she did not remember being tipped that Waksal was trying to dump his shares on the same day that she did, according to Glotzer's testimony.
Stewart also claimed in two SEC interviews that Bacanovic handled her sale of ImClone that day. It was actually Bacanovic's assistant, Douglas Faneuil, who took the order.
Under questioning from Morvillo, Glotzer said the SEC had not provided Stewart a form before a February 2002 interview that advises interviewees that lying to the agency is a crime.
But under questioning from prosecutor Michael Schachter, Glotzer said SEC routinely does not provide the form when it conducts joint interviews with prosecutors. And she said Stewart was clear on what the agency expected.
"She was advised to be truthful, and that she could speak to her counsel at any time," Glotzer said.
The day after Stewart dumped ImClone, the company announced disappointing news about a cancer drug that sent the stock on a quick 18 percent decline. Waksal later admitted having inside knowledge of the news.
Stewart and Bacanovic are accused of cooking up a cover story for the stock sale — that they had agreed earlier to get rid of Stewart's shares if the stock price fell below $60.
Morvillo petitioned U.S. District Judge Miriam Goldman Cedarbaum to let him argue that Stewart's sale was not an act of insider trading. He wants to show Stewart never believed she made an insider sale — and therefore had no motive to lie.
But the judge, worried that jurors will become confused about the actual charges against Stewart, was cool to the request.
Morvillo argued that prosecutors implied in their opening statement, when they accused Stewart of receiving a "secret tip," that she was trying to cover up insider trading. She is not actually charged with insider trading.