Stewart Business Manager Bolsters Defense's Story

Weeks before Martha Stewart (search) sold her ImClone Systems (IMCL) stock, her stockbroker mentioned his desire to get rid of her shares before they fell to $60, a Stewart business manager testified Monday.

The testimony by Heidi DeLuca undercuts the government's charge that Stewart and the broker dreamed up the $60 price floor later, as a cover story.

DeLuca, testifying for the defense, said that stockbroker Peter Bacanovic (search) told her on Nov. 8, 2001, that he could "set a floor price of $60 or $61" for Stewart's ImClone shares.

"He said he would speak to Martha about it personally," DeLuca said. The conversation would have been long before Stewart dumped her shares on Dec. 27, 2001.

Also Monday, U.S. District Judge Miriam Goldman Cedarbaum put off a ruling on whether to throw out any charges in the case.

The judge has appeared intrigued by the possibility of throwing out the most serious charge against Stewart -- securities fraud -- which accuses her of deceiving investors in her media conglomerate, Martha Stewart Living Omnimedia, when she publicly proclaimed her innocence.

The judge has called that charge "novel" and "the most problematic" of the five counts each against Stewart and Bacanovic.

The government contends that Stewart sold her ImClone stock after Bacanovic tipped her that ImClone founder Sam Waksal (search) was frantically trying to unload his holdings. Waksal had advance word that the government rejected an application for an ImClone cancer drug -- a decision that would later send ImClone stock plummeting.

The securities fraud count refers to three statements Stewart and her lawyers made in June 2002 in which they insisted she sold ImClone because of the $60 agreement.

Prosecutors say that was a play to prop up the stock price of Martha Stewart Living Omnimedia  (MSO). Stewart owned nearly all the voting shares in the company and stood to lose $30 million for every dollar her stock fell.

Also in the courtroom Monday, Stewart got support from entertainer Bill Cosby, who sat directly behind her in the courtroom. Asked by reporters why he showed up, Cosby said: "I'm here for a friend."

On Tuesday, the defense hopes to use DeLuca to undermine the testimony of Douglas Faneuil, the young Merrill Lynch assistant who was the prosecution's star witness.

Faneuil testified DeLuca was angry with him in a January 2002 phone call because the ImClone sale, made at a gain to Stewart, disrupted Stewart's careful planning to sell some stocks at a loss for tax purposes.

DeLuca is expected to contradict that testimony Tuesday. She is also expected to be cross-examined by prosecutors later in the day.