Martha Stewart: Can Her Credibility Be Saved?

During the third week of stinging testimony by government witnesses, the Martha Stewart case reached a dramatic high point with the emotional testimony of her longtime secretary, Ann Armstrong. The feds accuse Stewart of conspiring with her stockbroker (and co-defendant) Peter Bacanovic to conceal her dumping of ImClone Systems stock in December 2001 after getting an inside tip. Her secretary burst into sobs before recounting how Stewart doctored a phone message from Bacanovic that Armstrong had taken--implying an attempted cover-up. According to the government, Stewart lied when she later denied knowledge of the phone-log entries in an interview with federal investigators on Feb. 4, 2002.

But sources close to the defense tell TIME that Stewart's attorney Robert Morvillo intends to highlight discrepancies between notes taken at that interview by a rookie FBI agent and those taken by one of Stewart's attorneys, Stephen Pearl. According to Pearl's notes, Stewart did not deny knowing about the phone log but said only that she didn't know the time the message was taken. Because Armstrong didn't record the time, the defense will say Stewart didn't lie. The judge, meanwhile, is giving the prosecution little leeway to prove Stewart committed securities fraud by misleading her investors about her ImClone actions. To rehabilitate her credibility, she may take the stand, which could make last week's drama look tame by comparison.

--By Simon Crittle