Ms Martha Stewart dumped her shares in a biotech firm after being given an insider tip that the company's chief was selling his shares, a witness said yesterday in the most damaging testimony against her to date.

But while prosecutors used their star witness to make the case against the trendsetter, Ms Stewart's lawyers sought to undermine former Merrill Lynch employee Mr Douglas Faneuil by painting him as a marijuana-smoking drug user.

Mr Faneuil, a former assistant to Ms Stewart's broker, said he gave the tip to the businesswoman by telephone on December 27th, 2001, when she sold nearly 4,000 shares of ImClone Systems stock for $228,000 (€182,000).

In his second day of testimony, Mr Faneuil admitted illegally tipping off Ms Stewart that Mr Sam Waksal, ImClone's then chief executive, and his two daughters were dumping their shares.

"I told her that Sam was trying to sell," Mr Faneuil explained to jurors.

Ms Stewart asked about ImClone's stock price and then she said "I want to sell all my shares," Mr Faneuil told the hushed courtroom.

His testimony is the cornerstone for the government's case against Ms Stewart and her former Merrill Lynch broker and friend Mr Peter Bacanovic, both charged with lying to cover up the suspicious trade.

Ms Stewart and Mr Bacanovic maintain they had a pre-existing order to sell ImClone stock if it dropped below $60 a share.

If convicted of the most serious charge against her, securities fraud, Ms Stewart faces up to 10 years in prison.

Mr Faneuil first took the stand on Tuesday. He said Mr Bacanovic, his former boss, had ordered him to pass the information to Ms Stewart. - (Reuters)