Dispatches From The Martha Stewart Trial

Schachter Blows Up Heidi; Morvillo Rolls The Dice

Chance of conviction
Tuesday, Feb. 24, 2004: 33 percent
Bacanovic’s defense team rested, and, in a ballsy move, Morvillo announced that he would be calling exactly one Stewart defense witness, who will testify for no more than 15 minutes. Meanwhile, Assistant U.S. Attorney Schachter knee-capped Heidi DeLuca’s credibility, and, with it, the defense’s gains of yesterday. Stewart’s chances of conviction rise to 1 in 3.

For Assistant U.S. Attorney Michael S. Schachter, it has been a rough trial. From the get-go, Schachter and defense attorney David Apfel have been vying for the title of “Judge Cedarbaum’s Favorite Whipping Boy,” and although Apfel now appears to have this award locked up, it wasn’t always so. Schachter, for example, was the one implicitly blamed for withholding the “prior statement” documents that got Faneuil’s testimony postponed. Schachter was the one who asked the plum-pudding question that reduced sympathetic Stewart assistant Annie Armstrong to tears. Schachter was the one who got stuffed by Judge Cedarbaum on the admission of suspicious phone calls—and then whined in futile protest. And Schachter was the one who, last Thursday, set up prosecution witness Mariana Pasternak like a ball on a tee so Bob Morvillo’s Big Bertha cross examination could drive her 300 yards.

Today, however, in his cross-examination of defense witness Heidi DeLuca, Schachter demonstrated why he is what, in Wall Street parlance, might be called a Big Swinging Dick (believe it or not, this is a compliment). In yesterday’s direct examination, DeLuca testified that, on Wednesday, Nov. 7, 2001, she wrote the following note on her Quicken version of Stewart’s investment portfolio: “ImClone, $61.52, Wednesday, tender offer, not responding.” DeLuca explained that the note referred to the Bristol Myers tender offer, in which Bristol bought 14 million ImClone shares at $70, and that, because of the tender, she had expected the stock’s price to rise to more than $70 and was confused about why it hadn’t. DeLuca then testified that the next day, Thursday, Nov. 8, she had a conversation with Peter Bacanovic in which he explained “tendering 101,” and then

told me that he felt ImClone was a dog … and that … he felt that he could set a floor price of 60 or 61, just in case the stock continued to fall, as like a safeguard.

As was widely reported, this testimony boosted the defense. The “$60 agreement” is the most important—and most controversial—fact in this case, and DeLuca’s clear-as-a-bell recollection of her Nov. 8 conversation with Bacanovic appeared to corroborate its existence. DeLuca’s recollection was so clear, in fact, and so firm that this morning when Schachter started in with questions about whether DeLuca was sure she’d had the conversation on Nov. 8 and sure that she’d been referring to Stewart’s personal ImClone shares, as opposed to the 51,800 she had just sold out of her pension fund, he seemed en route to self-destructing again:

Q. Now, you told us, Ms. DeLuca, yesterday about a conversation that you recalled having with Peter Bacanovic on the subject of a floor price of 61 or 60 for selling ImClone, is that right?A. Yes.Q. And it is fair to say, Ms. DeLuca, that this is the only time that you recall ever speaking to Peter Bacanovic about setting a floor price for the sale of the stock, isn’t that correct?A. Yes.Q. Let’s talk about this conversation. … Yesterday, Ms. DeLuca, Feb. 23, 2004, you very precisely testified that this conversation occurred on Nov. 8, 2001. Do you recall that testimony?A. Yes.Q. And this conversation happened more than two years ago, but in your testimony you placed a specific date on that conversation, is that right?A. Yes.Q. Ms. DeLuca, on March 12 of 2002, you met with people from the Securities and Exchange Commission and the FBI and the U.S. Attorney’s Office, is that correct?A. Yes.Q. And you were asked about this conversation back then, is that fair to say?A. Yes.Q. And in that conversation you did not say that it occurred precisely on Nov. 8, 2001, is that correct?A. That’s correct.

Schachter had DeLuca confirm that, at the end of October, Stewart had sold all 51,800 ImClone shares from her pension-fund account. He had her confirm that the conversations she had had with Bacanovic with regard to the pension-fund sale were different than the Nov. 8 conversation about Stewart’s personal ImClone shares. He had her confirm that the Nov. 8 conversation had nothing to do with the pension-fund sales. Then he had the court audio-visual operator display DeLuca’s notes—”ImClone, $61.52, Wednesday, tender offer …”—on the screen.

Q. These are your notes, is that right, Ms. DeLuca?A. Yes.Q. Do you recall that yesterday Mr. Apfel showed you this note, right?A. Yes.Q. And he asked you when he showed you the note, he asked you: “What Wednesday are you referring to in that message?” And your answer was: “That would be Nov. 7, 2001.” … Do you recall giving that testimony?A. Yes.Q. And before seeing this note, Ms. DeLuca, is it fair to say that you didn’t have any kind of independent recollection that this conversation happened precisely on Nov. 8, 2001, is that right?A. That’s correct.Q. And you would agree with me, Ms. DeLuca, that there is nothing on this document itself which contains the date Nov. 8, 2001, is that right?A. That’s correct.Q. Isn’t it true, Ms. DeLuca, that you could be mistaken about that date?A. No.Q. Isn’t it true, Ms. DeLuca, that these are notes of a conversation that you had with Peter Bacanovic on October the 24th, 2001, about selling the 51,800 shares from the pension account at 61?A. No.Q. And isn’t it true that this note has nothing to do with setting a floor of ImClone at 61 or 60 for any future sales?A. I don’t understand that question.Q. I’ll withdraw it.

For obvious reasons, exchanges like this one increase heart rates in the courtroom: Someone—lawyer or witness—is about to take a fall, and he or she is going to take it soon.

Q: [Ms. DeLuca], I am going to show you what’s been marked as Defense Exhibit Bacanovic 903. This is the hard copy of what we have on the screen. And this, you have said, Ms. DeLuca … is a document that you have printed off of the Internet, is that right?A. Yes.Q. And when you print off of the Internet there is sometimes a date which appears in the lower right-hand corner, is that right?A. I believe so.Q. [Now], I am going to show you what has been marked for identification as Government Exhibit 502. Do you see that?A. Yes.Q. Government Exhibit 502, Ms. DeLuca, is the original of Bacanovic 903 [the defense’s version of the Quicken portfolio and notes]. It is your handwritten notes, is it not?A. Yes.Q. Now, looking at Bacanovic 903 [the defense version] in the lower right-hand corner, you don’t see a date, do you?A. No. Q: Your Honor, I offer Government Exhibit 502, and I’ll provide you with a copy, Ms. DeLuca.

At this point, the courtroom was electrified. Maybe Schachter knew what he was doing, after all; maybe he wasn’t going to self-destruct! And the spectators, it turned out, weren’t the only ones on edge. Inside Bacanovic defense attorney David Apfel, presumably, sirens were blaring and lights were flashing red.

MR. APFEL: Objection, your Honor.

JUDGE CEDARBAUM: On what ground?MR. APFEL: I don’t think he has laid a proper foundation for this document.JUDGE CEDARBAUM: Excuse me?MR. APFEL: I don’t think he has laid a sufficient foundation for this document.JUDGE CEDARBAUM: Overruled. The witness testified this is the original of the document that you offered in evidence and that was received in evidence. Government Exhibit 502 is received in evidence.MR. SCHACHTER: Mr. Bove, could you please put up 502, the third page. [Ms. DeLuca], Looking at the lower right-hand corner of the original document, Government Exhibit 502, do you see a date which is printed on this document?A. Yes.Q. What is that date?A. Oct. 24, 2001.Q. And, Ms. DeLuca, Oct.  24, 2001, that was a Wednesday, was it not?

You get the picture. On a roll, Schachter submitted piece after piece of evidence illustrating to everyone in the courtroom (with the exception of Heidi DeLuca) that DeLuca had almost certainly made a mistake with regard to the date of her recollection, that the “$60-$61 floor” conversation with Bacanovic had almost certainly referred to the pension-fund shares Stewart sold on Oct. 26, not the remaining personal-account shares she sold on Dec. 27, and, therefore, that the defense’s trophy collaborative testimony about the “pre-existing agreement” could no longer be trusted.

And, for good measure, when he was done with the “floor” conversation, Schachter got Heidi DeLuca to testify that, 1) even though Martha Stewart Living Omnimedia paid DeLuca’s salary, about 70 percent of what she did concerned Martha Stewart’s personal affairs, and that 2) on Stewart’s orders, which DeLuca apparently never questioned, DeLuca had submitted the bill for Stewart’s post-Christmas 2001 Mexico and Panama vacation—the Mexico hotel portion of which alone cost more than Tyco’s Dennis Kozlowski’s $16,000 dog umbrella stand—for reimbursement as a business expense. (It is not clear that the company actually paid this bill, but it was certainly implied.) Later, on redirect, the defense managed to dress some of the Schachter wounds, but not all, and, on balance, DeLuca’s testimony probably did more harm than good.