Wachtell lawyers face court appearance against client Martha Stewart

New York’s Wachtell Lipton Rosen & Katz may soon be viewing the trial process from the other side after it emerged that two of its partners could be called as witnesses in the case against client Martha Stewart.
Litigation partners Lawrence Pedowitz and John Savarese may be asked to the stand as witnesses for the prosecution. This is based on an indictment, issued on 4 June by the Southern District of New York, a branch of the Department of Justice (DoJ), that accuses Stewart of securities fraud, obstruction of justice and making false statements to investigators.
It is understood that a third lawyer could be called, although it is not known if that person also practises at Wachtell.
While it is thought that the defence could also call the two Wachtell lawyers to give evidence for Stewart, the fact that they could be called at all could unearth tricky questions about lawyer-client privilege.
The case, brought after nearly a year and a half of investigations by the DoJ, the Securities and Exchange Commission and the FBI, stems from Stewart’s sale of shares in ImClone.
Stewart allegedly sold her stake in the cancer drug company on advice from Merrill Lynch broker Peter Bacanovic.
It is claimed that Bacanovic contacted Stewart in December 2001 to advise her that ImClone co-founder Samuel Waksal was selling shares in the group after learning that its cancer drug Erbitux would not gain approval from the US Food and Drug Administration.
The Wachtell partners could face questions on two points. Firstly Stewart allegedly changed a record of a message, received on 27 December, from Bacanovic. The DoJ suggests that the original message read: “Peter Bacanovic thinks InClone shares are going to start trading downward”, but was apparently changed by Stewart to read: “Peter Bacanovic re ImClone.” It is alleged that she then later changed it back to the original message.
However, the indictment accuses Stewart of making the change following a conversation with her lawyers, when they discussed her first meeting, which took place on 4 February 2002, with the authorities.
Also, it is claimed that Stewart misled investors in her own company, Martha Stewart Living Omnimedia, in relation to public statements she made, one of which was issued through her lawyers, regarding her role in the drama. Stewart has since resigned as chief executive officer of the company.
Weeks after these statements were made, New York’s Morvillo Abramowitz Grand Iason & Silberberg also began representing Stewart.
The New York Law Journal says that the statement issued through Stewart’s attorney was for public relations purposes and therefore would not affect lawyer-client privilege.
However, it is possible that the DoJ could possibly invoke the ‘crime-fraud exception’, which removes privilege in circumstances where a lawyer has been used to commit a fraud or crime.