- The Washington Times - Tuesday, February 17, 2004

NEW YORK (AP) — A federal judge yesterday further limited the government’s ability to prove Martha Stewart and her stockbroker conspired to lie about Mrs. Stewart’s sale of ImClone Systems stock.

The judge blocked prosecutors from putting into evidence a voice mail that broker Peter Bacanovic left for Mrs. Stewart on Feb. 4, 2002, the day she was first interviewed by the government in the ImClone investigation.

“The fact that he tried to contact her really isn’t evidence of anything, other than that they talked to each other sometimes,” U.S. District Judge Miriam Goldman Cedarbaum said.

The essence of the conspiracy charge is that Mrs. Stewart and Mr. Bacanovic worked together to hatch a cover story for why Mrs. Stewart sold 3,928 shares of ImClone Systems stock on Dec. 27, 2001.

The government contends Mr. Bacanovic ordered his assistant to tip Mrs. Stewart that ImClone founder Sam Waksal was trying to sell his shares. Mrs. Stewart and the broker say they had arranged earlier to sell ImClone when it fell below $60 a share.

Prosecutor Karen Patton Seymour argued that the voice mail recorded just after 7 a.m. on Feb. 4, 2002, is evidence of Mr. Bacanovic’s state of mind in the reputed conspiracy.

Mrs. Stewart gave the first of two interviews to investigators later that day.

The judge also limited what prosecutors can argue about two other calls between Mrs. Stewart and Mr. Bacanovic on Jan. 25, 2002, the day Mrs. Stewart was informed that federal prosecutors wanted to speak with her.

Judge Cedarbaum said those calls can only be used to show the pair spoke with each other. “I don’t think you can argue that there is significance to the date without knowing the content of the call,” she said.

On Friday, the judge barred prosecutors from putting into evidence a record of a phone call from Mr. Bacanovic to Mrs. Stewart on Jan. 31, 2002, just after, according to testimony, Mrs. Stewart changed a message log of a Dec. 27 call from Mr. Bacanovic.

The new setbacks to the government also came on the heels of the judge’s ruling on Friday that blocks prosecutors from calling expert witnesses as they try to show Mrs. Stewart committed securities fraud.

They may still be allowed to call individual investors, however.

That charge accuses the domestic diva of propping up the stock price of her own company, Martha Stewart Living Omnimedia, by falsely claiming she was innocent and cooperating with investigators in the ImClone probe.

The ruling Friday means prosecutors will not be allowed to call stock analysts as witnesses to show what effect Mrs. Stewart’s statements had on the stock price.

Securities fraud, carrying up to a 10-year prison term, is the most serious of the five counts against Mrs. Stewart. The other four — conspiracy, obstruction of justice and two counts of making false statements — carry five years each.

The arguments on the phone calls came outside the jury’s presence yesterday, the start of the fourth week of Mrs. Stewart and Mr. Bacanovic’s trial in Manhattan federal court.

In front of the jury, prosecutors and an FBI special agent walked through a step-by-step, full-color graphic on a projection screen that showed ImClone-related phone calls on Dec. 27, 2001.

Those calls included some from Waksal’s daughters and his accountant, all wanting to sell ImClone shares. Waksal later admitted advance knowledge of the negative government report that would soon send the stock on a sharp decline. He went to prison.

But prosecutors were limited by the judge in their presentation of the chart. Judge Cedarbaum ordered the government to black out references to ImClone’s falling stock price on Dec. 27, and to e-mail messages sent the same day.

The judge said prosecutors could tie all the information together as part of their closing argument — but not in a single piece of evidence.

Yesterday, prosecutors put into evidence dozens of records from a system Mr. Bacanovic used to log calls and meetings he had with clients at Merrill Lynch & Co.

The records contained notes of discussions Mr. Bacanovic and Mrs. Stewart had in late 2001, but no reference to ImClone between Oct. 26 and Dec. 26. Prosecutors were apparently introducing the records to discredit Mr. Bacanovic’s insistence he and Mrs. Stewart agreed to sell ImClone when the price fell to $60 per share.

Prosecutors said last week they intend to rest their case tomorrow. The defense is likely to take several weeks, meaning the case should go to jurors in March.

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