Bring on the Closing Arguments
Reports on the antitrust suit.
Feb. 25 2004 10:28 PM

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Today's Martha Meter reading: 33 percent

Chance of conviction
Wednesday, Feb. 24, 2004: 33 percent
After a short morning, the defense rested. Stewart's chances of conviction remain one in three.

As promised, Martha Stewart's defense team rested after calling exactly one witness: a junior lawyer whose memo about what was said in Stewart's Feb. 4 interview with investigators contradicted the government's memo. After this witness stepped down, the prosecution kicked a dead horse for an hour by re-calling national ink expert Larry Stewart to throw more mud at defense ink expert Albert Lyter's densitometry practices, and further undercut Heidi DeLuca's recollection of a $60-$61 ImClone "floor" by playing a snippet of Bacanovic's SEC testimony in which he said they never discussed such details. Then, just after lunch, we were done. On Friday, the lawyers will argue with Judge Cedarbaum in private about the jury instructions, and on Monday and Tuesday, we'll hear closing arguments.

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With little action for the rest of the week, the focus necessarily leaps to the closing arguments and, prematurely, the verdict. Before going there, however, some observations about today's testimony:

The one and only Stewart defense witness was a former Wachtell, Lipton associate named Steven Pearl who, on Feb. 4, 2002, accompanied his boss John Savarese and client Martha Stewart to a meeting at the U.S. attorney's office, a meeting in which Stewart allegedly made multiple false statements. Like most associates, Pearl's role was to scribble frantically and then hoof it back to the office to type a summary—in other words, to do what FBI agent Catherine Farmer did for her side of the table. Both note-takers, apparently, were over and under-qualified for the job: Pearl has a law degree; Farmer has a Masters degree in French Literature; neither has a stenography degree. Pearl took 18 pages of notes; Farmer 25. Pearl recorded the questions; Farmer didn't. Pearl said that, in reference to Bacanovic's Dec. 27 phone message, Stewart was asked what time the message was left; Farmer said she was asked whether the message was in the phone log (the answer, both agreed, was that Stewart "didn't know"). Predictably, in both cases, on cross-examination, Jack Tigue and Karen Patton Seymour shredded the witnesses for their admitted inability to capture every word and for using memory to fill in the gaps.

And the ultimate result of the imperfect note-taking efforts of two smart, capable, and well-meaning people on Feb. 4, 2002? Frustration. Why? Because Farmer and Pearl, like other humans, probably got most of what they noted right—but only most. In this case, this means that the jury is being asked to evaluate whether Stewart and Bacanovic should go to jail for what they said—an assignment that would make any responsible adult sit up straight—without knowing for sure what they said. Having now discussed this issue with the FBI, U.S. attorney, etc., I understand that, for a number of reasons, tape-recorders are problematic (see previous dispatch), but after observing this trial, I would like to make the following motion: In the future, whenever the FBI creates a "302" (typewritten summary) of an interview, the witness should have a chance to confirm that the 302 accurately represents what he or she said. This would, of course, result in additional haggling and legal fees, but it would also enable juries to concentrate on whether the witness' statements were feloniously false and misleading instead of whether they were in fact statements at all.

Enough of the hand-written-note rant. On to closing arguments.

I haven't yet reviewed the evidence and testimony or heard Judge Cedarbaum's instructions about what elements the government has to prove on each count, so I'll save a charge-by-charge analysis for next week. From a high level, though, I will say that the government has presented a stronger case than I expected, especially with regard to Peter Bacanovic. The main reason for this? The performance of Douglas Faneuil.

I don't believe the government has proven beyond a reasonable doubt that the $60 agreement is a fabrication; in fact, I still think it may have existed. I don't believe the government has proven that Stewart and Bacanovic conspired: In my mind, the minor discrepancies in their stories suggest that they didn't conspire, not that they did. I don't believe the government has proven that Bacanovic forged the "@60" notation, although it is certainly plausible that he did (even, ironically, if the $60 agreement existed). I don't believe the government has proven securities fraud. I don't even believe the government has proven that Bacanovic told Douglas Faneuil to tell Stewart that the Waksals were selling (for reasons that I'll go into next week, I think Bacanovic may have told Faneuil to tell Stewart "what was going on with the stock," and Faneuil interpreted this to mean that he should relay the Waksal information).

I do believe, however, that the government has made a compelling argument that both Stewart and Bacanovic decided not to volunteer that the Waksal information had been passed on and that, until Faneuil came forward, they deliberately did not volunteer it (or, worse, lied about it). If this is what happened, I think the circumstances were mitigated by the fact that, pre-Faneuil, three government agencies believed the defendants were guilty of a crime they weren't guilty of:classic insider trading, based on knowledge of the Erbitux rejection. This fact doesn't excuse anything. It does, however, make the irony—and tragedy—of the situation more acute.

The impression Faneuil made was that, in the case of Bacanovic, the not-volunteering and/or lying extended to placing subtle pressure on Faneuil. In my opinion, to counteract this in closing arguments, Bacanovic's defense team doesn't need to undermine everything Faneuil said or even Faneuil himself (the ineffective strategy pursued during the cross-examination). Instead, they need to create the impression, bolstered by the evidence, that, with regard to a few key perceptions, Faneuil appears to have graduated from the Oliver Stone School of Conspiracy Theory.

A new idea began to circulate through the hallways this week, one that a month ago seemed unlikely but that today, anyway, met with general agreement. The idea is that a split verdict is now a real possibility. On the jury, the theory goes, there will be some people who want to convict both defendants, some who want to convict neither, and some who, for a variety of reasons, simply refuse to convict Martha Stewart on the evidence presented here. In situations like these, when there is a general impression that someone did something wrong, that someone should be punished for something, but that the alleged actions don't seem to warrant bringing companies down or sending national icons to prison, the easiest solution, for all involved—jury, judge, government, Martha Stewart's defense team, and Martha Stewart herself—may be a fall guy. And in this situation, the theory goes, the fall guy's name may be Peter Bacanovic.

Henry Blodget is the founder, editor, and CEO of Business Insider. Follow him on Twitter.

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