Key Witness Faces Up to Martha

The closely watched trial of Martha Stewart, the American businesswoman, was set to reach a pivotal point yesterday afternoon with the testimony of the government's key witness.

Douglas Faneuil, an assistant to Ms Stewart's former Merrill Lynch broker, Peter Bacanovic, was smuggled into court in the morning out of sight of the extensive media presence.

His testimony for the government in the obstruction of justice case has been heavily trailed. Mr Faneuil claims that he was ordered to tip off Ms Stewart in December 2001 that Sam Waksal, the founder of the drug company ImClone Systems, was dumping shares. Ms Stewart sold nearly 4,000 shares in the company shortly before damaging news that regulators had turned down a review of a potentially blockbusting drug in development.

Mr Bacanovic and Ms Stewart maintain that they had an existing agreement to sell the shares at $60.

The cross-examination will be more lively as the defence attempt to destroy Mr Faneuil's credibility. The defence lawyers want to maul the 28-year-old, questioning him on his use of drugs and presenting emails sent to his boyfriend, a magazine editor, complaining about how Ms Stewart treated him.

According to the New York Post, Mr Faneuil wrote in one email, describing himself as "baby", that Ms Stewart had treated him badly but "baby" got back at her.

It was clear from the opening arguments that Mr Faneuil would be the crucial witness. Lawyers for Ms Stewart and Mr Bacanovic, who is a co-defendant in the case, both fixed on the assistant broker.

Mr Bacanovic's defence described him as an "admitted liar" who had done a deal with the government to escape prosecution. Mr Faneuil, who had originally supported the version of events put forward by Mr Bacanovic and Ms Stewart, has accepted a misdemeanour conviction in return for providing evidence.

The defence added that the assistant was star-struck and had originally lied about his dealing with Ms Stewart "to impress someone" and "to be the big man". Ms Stewart's defence also spent time trying to discredit Mr Faneuil, describing him as a novice broker "overwhelmed by what was going on around him".

Mr Faneuil's testimony was delayed last week when the government handed the defence notes from an interview given by the assistant's former lawyer to the FBI. The lawyer said he could not recall whether it was Mr Bacanovic or Mr Waksal who had told Mr Faneuil to contact Ms Stewart.

The government has used the intervening time to prepare the groundwork for Mr Faneuil's testimony.

On Monday, an administrative officer at Merrill Lynch, Julie Monaghan, said Mr Bacanovic had offered in March 2002 to pay Mr Faneuil a $5,600 cash bonus and to increase his share of monthly commissions from 1.25% to 1.75%. That appeared to support Mr Faneuil's claim to investigators that Mr Bacanovic had tried to buy his silence.

Ms Stewart's lawyer, Robert Morvillo, wants to cross-examine Mr Faneuil about his admission to the FBI that he used the drug ecstasy and smoked marijuana before and after he began cooperating with the government. Prosecutors have filed papers requesting that the questioning remain off limits.

Other witnesses on Monday included Mr Waksal's former assistant who took a phone call from Ms Stewart on the day that she sold her shares.

The assistant, Emily Perret, said: "I remember speaking with Martha. I answered the phone, she said 'Where is Sam, get Sam'." Asked to describe her tone in the conversation, Ms Perret said Ms Stewart had seemed "very hurried and harsh and direct".