By Ben White
Washington Post Staff Writer
Thursday, February 12, 2004; Page E04

NEW YORK, Feb. 11 -- Jurors at Martha Stewart's trial slipped on headphones Wednesday and heard for the first time from Stewart's former stockbroker, Peter E. Bacanovic.

For over an hour, the prosecution played excerpts from a Feb. 13, 2002, interview with lawyers from the Securities and Exchange Commission, during which Bacanovic recounted his version of why Stewart sold her shares in biotechnology firm ImClone Systems Inc. on Dec. 27, 2001.

On the recording, Bacanovic said he had no information about an impending news announcement that sent ImClone's stock price tumbling after Stewart sold her shares. He also said he never told Stewart that ImClone co-founder Samuel D. Waksal, and members of Waksal's family, were attempting to sell their ImClone stock.

Bacanovic said he and Stewart agreed at a dinner meeting on Dec. 20 that she should sell the ImClone shares when they dropped below $60, as they did on Dec. 27.

Bacanovic said that at the dinner he urged Stewart to dump her remaining 3,900 shares of ImClone because he thought the company's stock price had peaked, at least for the short term. But he said Stewart was reluctant, in part because she believed that ImClone's experimental cancer drug, Erbitux, would eventually receive federal approval.

Bacanovic said he finally prevailed in the argument. "We determined that $60 a share would be a suitable price, should it ever fall that low," he said. "Of course, she never thought it would."

At one point during the interview, an indignant Bacanovic told the SEC that he based his entire career as a stockbroker on maintaining client confidences. "I did not get to be a first vice president at Merrill Lynch by discussing client business with other clients or by being indiscreet," he said.

The government contends that Bacanovic's explanation of the stock sale is false. Prosecutors argue that Stewart and Bacanovic concocted the $60 story after the fact to hide the real reason for the sale: that Stewart was told that the Waksals were selling and decided to do so as well.

Bacanovic and Stewart are both charged with obstructing justice by conspiring to deceive federal investigators. Bacanovic is also charged with perjury. Stewart faces a securities fraud charge for allegedly propping up shares in the company she founded, Martha Stewart Living Omnimedia Inc., by making false public statements about the reasons for selling her ImClone stock.

Last week, Bacanovic's assistant, Douglas Faneuil, testified that he told Stewart, at Bacanovic's request, that the Waksals were selling.

On the recording, Bacanovic said he made his living solely off commissions at Merrill Lynch and that he earned $540,000 in 2000 and $350,000 in 2001.

When asked about his relationship with Waksal, Bacanovic said he "didn't mind" the ImClone founder but was never close friends with him, as he was with Stewart. He said he eventually grew tired with all the "stress and grief" that Waksal brought into his life.

Also Wednesday, jurors heard from FBI agent Catherine M. Farmer, who recounted interviews with Stewart on Feb. 4 and April 10, 2002. Farmer said Stewart told investigators that she spoke directly with Bacanovic just before the stock sale. That would contradict both Bacanovic's and Faneuil's accounts of the events of Dec. 27.

Farmer also said Stewart said she could not recall whether she got a tip that the Waksals were selling. When investigators noted that Stewart's name appeared on Samuel Waksal's phone-message log on the 27th, she said she just wanted to make sure everything was okay with ImClone.

Lead prosecutor Karen Patton Seymour said at the close of the day the government would probably rest its case next week. Stewart's main defense lawyer, Robert G. Morvillo, said his case could take anywhere from two days to three weeks. The court will be closed Thursday for Lincoln's Birthday. The trial will resume Friday.