Martha's Trial Comes to Screeching Halt

01/30/2004 at 02:27 PM EST

A federal judge shut down the trial of Martha Stewart on Thursday, postponing the testimony of the government's star witness, Douglas Faneuil, for at least a week after defense attorneys accused prosecutors of withholding vital information about his story.

The delay came after Judge Miriam Goldman Cedarbaum scolded prosecutors for withholding from defense lawyers a 2003 FBI document that casts doubt upon key allegations against Stewart's stockbroker, Peter Bacanovic, who is also facing the same charges, of lying to federal investigators.

Faneuil, 28, is the former brokerage assistant at Merrill Lynch & Co. who sold Stewart's 3,928 shares of ImClone Systems stock in 2001 on orders from Stewart, 62. The government says Stewart sold the shares because Bacanovic, 41, sent a tip through Faneuil that ImClone Systems founder Sam Waksal was trying to dump his family's shares.

But, according to the Associated Press, Faneuil's former lawyer, Jeremiah Gutman, gave a statement to the FBI that raised questions about whether it was Bacanovic or Waksal who had ordered Faneuil to tip off Stewart. (Faneuil has already pleaded guilty in exchange for his testimony against Stewart and Bacanovic.)

In court Thursday, defense attorneys suggested Faneuil had told his lawyer he was not sure whether it was Bacanovic or Stewart. The government suggested it was Gutman, who is in his 80s, not Faneuil, who could not recall.

Lawyers for Stewart and Bacanovic said this information about the FBI document should have been provided to them long ago, and the judge concurred, saying: "I do think the government should have turned over this information sooner."

In what is being deemed an embarrassment to prosecutors, their side had no other witness to call on Thursday after Faneuil was prevented from testifying, and Stewart's lawyers argued that the jury will have trouble picking up the pieces of the trial after a week's delay. (The case was canceled Wednesday, owing to a snowstorm that hit New York.)

Prosecutors had hoped to set the tone for the case with Faneuil's testimony, which they viewed as their strongest ammunition. All in all, legal observers are calling Thursday's turn of events "a good thing" for Stewart.

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