NEW YORK – A federal judge placed a roadblock in the government's case against Martha Stewart on Thursday, delaying the testimony of its star witness and chastising prosecutors for withholding information that might undermine the witness' credibility.
The decision by U.S. District Judge Miriam Goldman Cedarbaum came moments before Douglas Faneuil (search), the former brokerage assistant who handled the stock sale at the center of the trial, was to take the stand.
While not crippling to the government, the ruling disrupts the prosecution and provides the defense with ammunition in its attempt to discredit the young assistant. Lead prosecutor Karen Patton Seymour told the judge the decision would hamper the government's ability to "provide the foundation" for its case.
Faneuil is expected to testify that he gave Stewart a secret tip from her stockbroker that led the home decorating and style maven to sell nearly 4,000 shares of ImClone Systems (IMCL) stock just before it plummeted on a negative report about its most important drug.
But late Wednesday night, prosecutors provided defense lawyers with a document that raises doubts about whether the stockbroker ordered that the tip be passed on -- and whether Faneuil himself recalls the episode clearly.
Lawyers for Stewart and the stockbroker, Peter Bacanovic (search), complained that they should have received the document weeks or months ago.
"I do think that the government should have turned over this information sooner," Cedarbaum said. But she refused a request by Bacanovic's attorney to declare a mistrial or dismiss charges against his client.
Jurors were not present for the judge's remarks, and they were sent home until Monday. Cedarbaum delayed Faneuil's testimony until next Thursday to give the defense time to review the document and revise its case.
The government says Bacanovic told Faneuil to tip Stewart on Dec. 27, 2001, that ImClone founder Sam Waksal (search) was selling his shares. Waksal has admitted getting early word of the negative drug review.
Stewart and Bacanovic are accused of cooking up a false story about why Stewart sold the stock that day. They claim they had a pre-existing agreement to sell ImClone when it fell to $60 per share.
Cedarbaum's decision forces prosecutors to call several witnesses ahead of Faneuil and risk confusing jurors, one expert said.
"A prosecutor wants control in the courtroom," said Gregory J. Wallance, a former federal prosecutor. "They're the ones who have the burden of proof. And what's happened here is they've lost some control."
The newly disclosed evidence centers on an interview that Jeremiah Gutman, Faneuil's former attorney, gave to federal authorities in January 2003.
An FBI account of the interview says Gutman told investigators that Faneuil had said "he had been instructed by Bacanovic or Waksal to pass information on to Martha Stewart about ImClone," according to a person who has seen the FBI account and discussed it with The Associated Press on condition of anonymity.
Prosecutors suggested in court Thursday that the document shows only that Gutman, who is more than 80 years old, does not have a clear recollection of Faneuil's account.
The prosecution said it believes it was under no obligation to turn over the document earlier, and had complied with federal rules by alerting the defense that investigators were speaking to Gutman.
When defense attorneys get around to cross-examining Faneuil, they will likely use the newly disclosed evidence to try to convince jurors that Faneuil, whom they have repeatedly called a liar, cannot be trusted.
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