The "Annie Incident" and the Royal "We"
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Feb. 10 2004 11:02 PM

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Today's Martha Meter reading: 40 percent

Chance of conviction
Tuesday, Feb.10: 40 percent
Based on SEC investigator Helene Glotzer's testimony that she asked Martha Stewart whether she was sure that Stewart had placed her sell order with Peter Bacanovic (one of the false statement specifications), Stewart's chances of conviction rise from 30 percent to 40 percent. However, Glotzer hasn't been cross-examined yet.

Martha Stewart's assistant Ann Armstrong showed no lingering distress this morning from her plum-pudding-induced breakdown yesterday. Assistant U.S. Attorney Michael Schachter eased her back into the swing of things by having her identify a dozen phone messages. Then he returned to the events of Dec. 27, 2001.

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When Stewart called the office from the San Antonio airport early that afternoon, Schachter asked, did Armstrong have trouble hearing her? Did she remember Stewart saying she was having trouble hearing Armstrong? Was there any background noise on the call? To these questions, Armstrong's answer was "no." The prosecution has asked similar questions of every witness who spoke to Stewart that afternoon—and their answers have also been "no." The prosecution has asked a witness who knows Peter Bacanovic and Douglas Faneuil whether she ever had any trouble distinguishing between the two on the phone—and her answer was "no."

Why has the prosecution asked these questions? Because, as SEC investigator Helene Glotzer would soon testify and as Stewart's attorneys have conceded, in Stewart's interview with the feds on Feb. 4, 2002, she said, incorrectly, that she placed her trade with Peter Bacanovic—a statement the government alleges was intentionally false and misleading. And also because, in his opening statement, Bob Morvillo suggested, implausibly, that on Dec. 27, Stewart believed she was speaking to Bacanovic instead of Faneuil. The fight over this alleged false statement won't begin until tomorrow when Morvillo crosses Glotzer. Today's first highlight was "The Annie Incident."

Around 5 o'clock in the afternoon on Jan. 31, 2002, Ann Armstrong testified, Martha Stewart spoke to John Savarese, her attorney at Wachtell, Lipton, for about half an hour. After she got off the phone, Armstrong continued [All italicized testimony is paraphrased],

She asked me to fax John Savarese the phone messages from Wednesday, Dec. 26 through Monday, Jan. 7. Then she asked if she could see the messages. I brought the message log up on my computer. Martha came over to my computer. ... I scrolled past the messages from the 26th and put up the 27th.

Q: What happened after you put up the messages?

A: Martha saw the message from Peter, took the mouse, put the cursor at the end of the sentence, highlighted it back to the end of Peter's name, and then started typing over it. …

Q: Can you describe where Ms. Stewart and you were?

A: She was sitting at my desk, and I was standing behind her.

Q: What did she replace the message with?

A: 'Re imclone,' all lower case. …

Q: What happened after she replaced the message?

A: She instantly stood up and still standing there asked me to put it back the way it was. Then she walked over to her door and turned around and asked me to get her son-in-law on the phone.

[Stewart's son-in-law is an attorney who has represented both Stewart and Martha Stewart Living Omnimedia. Armstrong knew this. She also considered Stewart's son-in-law a friend.]

Q: When you were back at your computer, what did you do?

A: I didn't know what to do. I really didn't know what to do. … Martha was on the phone with her son-in-law for 15 minutes. While she was on the phone, I added punctuation to the message to just reflexively neaten it.

Specifically, Judge Cedarbaum soon clarified, Armstrong added a colon after "re" and capitalized the "I" and "C" of ImClone. No wonder Stewart sent Armstrong a plum pudding for Christmas. We should all have such fanatically detail-oriented assistants.

After Stewart got off the phone with her son-in-law, Armstrong testified, the son-in-law called Armstrong. He told her not to touch anything, to "stop in her tracks," and asked her to meet him later to discuss what had happened. They met at a restaurant, and Armstrong told the son-in-law that she was in "a bit of a quandary" about getting the message back because her message-log wasn't backed up on the server. When Armstrong got home that evening, she spoke again to Stewart, who asked her whether she had been able to put the message back in its original form. She explained that she hadn't, because she couldn't remember what the original message was. Then she, Ann Armstrong, wrote in a notebook everything that had happened that day.

Ultimately, Armstrong testified, she discovered a copy of the original message on her computer because her computer had crashed and automatically saved everything. When she found the original, she faxed it to John Savarese and also sealed a copy for herself in an envelope (with a witness watching), presumably in case what is happening now happened. Let us take another moment to praise the fastidiousness and professionalism of Ann Elizabeth Armstrong.

As I described in a previous dispatch, Stewart's temporary rewriting of history was her first suspicious move. On its face, it suggests "consciousness of guilt"—why would she change the message if she didn't think she had done something wrong? In the previous dispatch, I suggested another possible motive: Her conversation with John Savarese had scared the bejeesus out of her—the government thought Sam Waksal had tipped her off about Erbitux!—and she had changed the message in panic after realizing that it might help her get convicted of a crime she hadn't committed. In any case, the prosecution did not attempt to use Armstrong to comment on Stewart's motives, nor did the defense. Instead, on cross-examination, a Koala-like Bob Morvillo purred the same refrain he had used on Douglas Faneuil:

Q: Did Ms. Stewart ever come to you and ask you to lie?

A: No.

Q: Did Ms. Stewart ever ask you to conceal the truth about this incident?

A: No.

Q: After Ms. Stewart learned that the government was going to interview you, did she ever ask you to lie or cover up this incident?

A: No.

After lunch, Ann Armstrong was gone, and Helene Glotzer, the assistant regional director with the SEC who launched the ImClone investigation, was in the witness chair. Like a previous witness, Glotzer was pregnant, but, thankfully, her baby wasn't due "Friday." She wore a black dress and had bushels of black hair.

Glotzer testified about the SEC's interviews with Douglas Faneuil, Peter Bacanovic, and Martha Stewart in January and February 2002 (see previous dispatches). As expected, she testified that, in the Jan. 3 interview, Faneuil stated that, on Dec. 27, Stewart had called and asked the price of ImClone and then placed her order with him. Glotzer then testified that, in the Jan. 7 interview, Bacanovic stated that Stewart had placed the order with him. She then testified that, in the Feb. 4 interview, Stewart had stated that she placed her order with Bacanovic. To this last assertion, she added the following:

A: I asked whether she was sure she had spoken to Peter Bacanovic. She said she was sure. She said she didn't recall who his assistant was.

This is new information, and it is potentially critical. If Stewart had only mentioned once that she gave her order to Bacanovic, this false statement charge would be much harder to prove (it would have been easy to make the mistake once, especially because the focus of the interview was on determining whether Stewart had been tipped off about Erbitux, not on what, if anything, Douglas Faneuil told Stewart about the Waksal sales). The fact that Glotzer said that she specifically challenged Stewart about this statement and received the same incorrect answer, however, makes the assertion look intentional. This Glotzer recollection, in fact, may be why, in his opening statement, Morvillo suggested that Stewart thought she was talking to Bacanovic instead of Faneuil. If Stewart's team has to rely on such an implausible defense to this charge, however, she could be in trouble.

Glotzer testified to Stewart's other alleged false statements in the Feb. 4 interview. She also testified that Stewart said that when her bookkeeper, Heidi DeLuca, was gathering documents to help Stewart prepare for the interview, she recalled the $60 conversation about ImClone. According to Stewart (Glotzer said), this meant that Stewart, Peter Bacanovic, and DeLuca all recalled the conversation the same way. This answer surprised the investigators, Glotzer said, because Stewart had just told them that she and Bacanovic hadn't spoken about the investigation or ImClone (another alleged false statement). When challenged on this point, Glotzer said, Stewart modified her answer, saying that she didn't know what Bacanovic's recollection was. Although I imagine that, on cross-examination, Morvillo will be able to suggest that Glotzer's memory is even more human than Douglas Faneuil's, this story certainly explains why the government thinks Stewart is full of it.

Peter Bacanovic's attorney, Richard Strassberg, got first crack at Glotzer. First, he attacked her motives: The SEC and Glotzer had invested two years in this investigation, the government's reputation was on the line, Glotzer's reputation was on the line, Glotzer's colleagues (and bosses) were watching … and Glotzer, therefore, presumably wanted to be as "helpful" to the government's case as possible. Second, Strassberg went after Glotzer's credibility—which, because of the circumstances, was a fat target. These conversations had taken place two years ago, after all, and there were no tapes of them, nor transcripts of any kind. Strassberg quickly got Glotzer to say that she hadn't even taken any notes at the meetings; that, in preparation for her testimony, she had looked at a colleague's notes. And then there were all the other conversations Glotzer had had in the last two years:

Would it be fair to say, Ms. Glotzer, Richard Strassberg said, using his signature cross-examination phrasing, that you've had thousands of conversations pertaining to the ImClone investigation in the last two years? Would it be fair to say that ImClone is not the only case you worked on? Would it be fair to say, Ms. Glotzer, that you've had hundreds if not thousands of conversations about other investigations over the last two years? Would it also be fair to say that you've had thousands of conversations about other things in the last two years? Yes, I hope so, Helene Glotzer said, after answering "yes" in one form or another to the other questions as well. Then, on behalf of his client, Peter Bacanovic, Richard Strassberg started in on the specifics:

Q: Ms. Glotzer, would you agree with me that sometimes, when you say, "we," you don't always mean "you"?

A: Yes, I sometimes use "we" to describe my staff.

Q: And would you also agree with me, Ms. Glotzer, that you sometimes use "we" to describe a whole bunch of stuff the SEC does, and not just you personally?

A: It's possible.

Q: And, Ms. Glotzer, would you agree with me that it's actually commonplace to say "we"—that it's not just you who does this.

A: Yes.

Having made this point, Strassberg moved in for the kill:

Q: Ms. Glotzer, you testified on direct that you understood that Peter Bacanovic said he had spoken to Martha Stewart on Dec. 27 and taken her order. You also testified that you had just heard four days before that that Douglas Faneuil had said that he had taken Ms. Stewart's order—but you didn't ask a follow-up question. Is that correct, Ms. Glotzer?

A: That's correct.

Strassberg then said that, at multiple points in the SEC's later interview with Peter Bacanovic (Feb. 13)—an event that, unlike the other interviews, was both taped and transcribed—the government phrased questions as, "What did you do?" while Bacanovic phrased his responses as, "this is what we did." After Judge Cedarbaum had dismissed the jury, Strassberg argued that, at one point in the tape, Bacanovic had said "we," and the transcript—a transcript that Helene Glotzer had personally approved—had said "I."

If the judge allows Strassberg to have his way, we'll all hear the tape and see the (erroneous) transcript tomorrow morning. This afternoon, though, the message we all heard was this: The government is trying to send Peter Bacanovic to prison, in part, over what, in the Jan. 7 interview, apparently amounts to the unrecorded, un-transcribed use of a disputed pronoun.

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