- The Washington Times - Sunday, February 29, 2004

NEW YORK (AP) — With their most serious charge cast aside by a federal judge, prosecutors will zero in today on their accusation that Martha Stewart and her stockbroker cooked up a cover story for a 2001 stock sale.

The government will present its closing argument in the five-week trial, hoping to persuade a jury of eight men and four women to convict the domestic maven of conspiracy, obstruction of justice and lying to investigators.

The charges spring from Mrs. Stewart’s sale of 3,928 shares of ImClone Systems stock on Dec. 27, 2001 — just before it declined sharply because of a negative government report on a company cancer drug.

The government says Mrs. Stewart and broker Peter Bacanovic lied to cover up the true reason for the sale: Mr. Bacanovic had sent word to Mrs. Stewart that ImClone Chief Executive Sam Waksal was trying to sell his own shares.

But prosecutors have been stripped of the most serious count they brought against Mrs. Stewart — a charge she lied to investors in her own media empire, Martha Stewart Living Omnimedia, by saying her ImClone sale was proper.

U.S. District Judge Miriam Goldman Cedarbaum found there was not sufficient evidence that Mrs. Stewart showed an intent to deceive investors when she issued three statements explaining the ImClone sale in June 2002.

When Stewart attorney Robert Morvillo makes his closing argument after the government’s, the judge’s ruling will allow him to streamline the remaining claims for the jury, said Timothy Hoeffner, a Philadelphia lawyer specializing in white-collar crime.

“It permits Morvillo to focus his closing statement on the core issues in the case — did Martha Stewart lie to the government and did she obstruct justice?” he said.

The securities-fraud count carried a potential 10-year prison term, double the potential terms of any other count in the case.

But the ruling leaves four counts against Mrs. Stewart and five against Mr. Bacanovic, all somehow related to what prosecutors say was a cover-up. Legal analysts say an acquittal for either is far from certain.

The judge has reserved today and tomorrow for closing arguments. Prosecutors will go first, but it is not clear whether attorneys for Mr. Bacanovic or Mrs. Stewart will present first on the defense side. In either case, the judge has said she expects the jury to begin deliberations Wednesday.

Prosecutors are likely to highlight three critical pieces of testimony against Mrs. Stewart:

• Douglas Faneuil, Mr. Bacanovic’s former assistant at Merrill Lynch & Co., testified that Mr. Bacanovic ordered him to alert Mrs. Stewart that the Waksal family was selling its shares of ImClone. While Mrs. Stewart is not charged with insider trading, among the charges is that Mrs. Stewart lied when she told the government she had no memory of being told about the Waksal sales.

• Ann Armstrong, a longtime assistant, testified that Mrs. Stewart personally altered a computer log of a Dec. 27, 2001, message from Mr. Bacanovic — days before she went in for her first interview with investigators.

• Mariana Pasternak, a longtime friend, said Mrs. Stewart confided to her during a Mexican vacation that she knew in advance about the Waksal sales.

Miss Pasternak testified that Mrs. Stewart told her: “Isn’t it nice to have brokers who tell you those things?”

She acknowledged under cross-examination that the remark could have been something she thought, rather than something Mrs. Stewart said.

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