Faneuil, Interrupted
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Jan. 29 2004 11:33 PM

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Today's Martha Meter reading: 18 percent

Chance of conviction Today: 18 percent Prosecution embroiled in document-withholding scandal. Star witness testimony delayed.

Robert Morvillo, Martha Stewart's lawyer
Robert Morvillo, Martha Stewart's lawyer

Today was the day that the government's star witness, Douglas Faneuil, was going to testify, and maybe the day that the defense was going to crucify him. Douglas Faneuil didn't testify today, however, and, thanks to the events that happened instead, he probably won't testify for a week. The defense still got to crucify him, though, albeit indirectly. The judge opened the session by asking to see the defense's "good faith basis" for wanting to question Faneuil about his "drug use"—drug use that, later, in the marble hallways outside the courtroom, somehow morphed into a "drug problem." On a cross-examination, the defense also managed to imply that Douglas Faneuil did not have the proper state securities license necessary to accept Stewart's ImClone trade (as long as Peter Bacanovic directed him to accept the trade, he apparently did).

That was later, though. In the morning, just after the judge arrived and just before the jury was to be summoned, Peter Bacanovic's attorney, Richard Strassberg, stood up. Your Honor, he began,

at10:15 pm last night, we received a fax from the government. The fax contained a document that is clearly Brady material [exculpatory information that must be shared with the defense], a document that concerns a substantial issue with regard to the prosecution of Peter Bacanovic. The document includes notes of a January 2003 FBI interview with Jeremiah Gutman, Douglas Faneuil's first attorney, in which Mr. Gutman states that Douglas Faneuil said that it might not have been Peter Bacanovic but Waksal who told him to relay the information to Martha Stewart. This is exculpatory information, Your Honor. The government should have turned this document over to us six months ago, in June. The fact that we received it at 10:15 last night, after the trial has begun, has serious implications for the ability of Peter Bacanovic to have a fair trial. [Note: All block quotes paraphrased in absence of transcript.]

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On the benches behind Strassberg, everyone leaned forward. We had prepared ourselves to suffer through an hour of watching-bread-rise testimony of a compliance officer before getting to Faneuil, but suddenly, right from the get-go, here he was: An eleventh-hour fax? A mysterious document withheld for six months? A document that revealed that Waksal might have been the cause of Faneuil's alleged indiscretion? Strassberg finished, and as lead prosecutor Karen Patton Seymour stood up, all eyes were on her.

Your Honor, Seymour began, in the same confident, matter-of-fact tone that she had used so effectively in her opening argument,

if you turn to Page 3 of the document, you will see that what it actually says is that Mr. Gutman did not recall whether it was Peter Bacanovic or Sam Waksal who told Douglas Faneuil to pass the information on to Martha Stewart. This statement is not Mr. Faneuil's statement. It is Mr. Gutman's statement. It is simply Mr. Gutman stating that he doesn't recall who told Douglas Faneuil to pass the information on. Brady requires that we provide the defense with the identity of the witness, Your Honor. We did that. There was no violation.

As Seymour continued her refutation, the buzz of excitement drained away. So, the eleventh-hour fax didn't mean anything, after all. The defense was just trying to make an issue out of it, as it does everything.

The instant Seymour finished, however, Richard Strassberg was back on his feet. Your Honor, he said,

if you turn to Page 2 of the document, not Page 3—Page 2—you will see that Mr. Gutman made a clear statement that Faneuil said that he had been instructed by either Peter Bacanovic or Waksal to pass the information on to Martha Stewart. The government didn't like that answer, obviously, so at the end of the interview, they challenged it, and got Gutman to change it to the statement Ms. Seymour just referred you to. Your Honor, Brady is about good faith, about scrupulous behavior. Here we are, day two of the trial, and this new document arrives that should have been given to us six months ago that opens up a whole different line of inquiry. The government's withholding of this document is completely in contradiction with Brady, Your Honor. I am applying for an immediate dismissal of the indictment against Peter Bacanovic.

In the startled courtroom, the buzz was back. Karen Seymour had just taken a blow. She was about to take another: 10 feet to the right of Mr. Strassberg, directly in front of the judge, Robert G. Morvillo was soon rising out of his chair.

Your Honor, Bob Morvillo said, in the patronizing, all-the-time-in-the-world tone of a man who has just pitched camp on the moral high ground,

I sent you a letter earlier today. In this letter, I explained to you that this latest issue is not an isolated issue. I explained that this issue is indicative of the way the government has behaved continually since the beginning of this discovery process. The government knows what its obligations are, Your Honor, and it has failed to fulfill them. These "shenanigans" should be treated as a serious violation. They should be remedied with sanctions. Your Honor, I would suggest that Douglas Faneuil should not be allowed to give testimony at this trial.

Hours later, after denying a Strassberg application for a mistrial followed by a Strassberg application for a week-long continuance, after listening to an indignant Morvillo lecture about misconstrued obligations and patterns of misbehavior, and after hearing protests from Ms. Seymour that may have had legal validity suddenly sounded like mouse squeaks, Judge Cedarbaum said she believed the government should have handed over the document sooner. Then she postponed Douglas Faneuil's testimony for up to a week.

It would later emerge that the late-night fax was sent in response to a letter Mr. Morvillo had sent the government early in the evening. After reviewing documents produced pursuant to the judge's ruling that Mr. Gutman's work-product was no longer privileged, Morvillo's team deduced that, during the investigation, Mr. Gutman had met with the FBI. Morvillo asked the government whether there were any notes from this meeting—and five hours later, the fax arrived.

Will the document that the world now believes the government inappropriately withheld from the defense really hurt the prosecution? No. Even Mr. Strassberg probably won't be able to convince the jury to place much weight on an aging Mr. Gutman's recollections of what Faneuil said or didn't say in a meeting a year earlier (and it is even less likely that Strassberg will get the imprisoned Sam Waksal, Aliza Waksal, or a Waksal representative to admit that they told Douglas Faneuil to pass any "information" on to Martha Stewart). And will the government's damaged credibility really hurt its case? Not directly: The jury wasn't present during the document discussions, so its members didn't see Ms. Seymour get vaporized.

Indirectly, however, as Karen Seymour admitted when asking Judge Cedarbaum to reconsider her decision, the day's events will hurt. The postponement of Faneuil's appearance will force the government to present its witnesses out of order, thus hindering its ability to, as Seymour put it, "provide the proper foundation for Mr. Faneuil's testimony." It will also take a jury who would have gone home for four days to ruminate and hear about damaging star-witness testimony (the cross-examination wouldn't have begun until Monday) and, instead, send it home for four days to hear (and, presumably, ruminate) about how the government has been accused of sleazy conduct and the star witness's appearance has been postponed.

The Martha Meter's chances of conviction drop further, to 18 percent.

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