- The Washington Times - Friday, February 27, 2004

NEW YORK (AP) — A federal judge yesterday tossed out the most serious charge against Martha Stewart, a count charging she deceived investors in her company when she publicly declared her innocence in the ImClone stock trading scandal.

The decision by U.S. District Judge Miriam Goldman Cedarbaum came just five days before jurors are expected to begin deciding the case against the celebrity homemaker and her stockbroker.

“I have concluded that no reasonable juror can find beyond a reasonable doubt that the defendant lied for the purpose of influencing the market for the securities of her company,” Judge Cedarbaum wrote.

Mrs. Stewart still faces four criminal counts — conspiracy, obstruction of justice and two counts of lying to investigators. The judge declined to throw out any of the five counts against broker Peter Bacanovic.

The securities fraud count carried a potential prison sentence of 10 years and a $1 million fine. The remaining four counts against Mrs. Stewart each carry a prison sentence of five years and a $250,000 fine.

“I’m pleased that the judge has dismissed the most serious of the charges against me, concluding that there is no evidence to support it,” Mrs. Stewart said in a message posted on her personal Web site.

Legal analysts said the ruling was cause for celebration for Mrs. Stewart’s defense team — but cautioned that it was by no means a signal that she will be cleared of all charges by a jury.

“There’s no question the government put forth evidence that at least supports their version of events,” said Jack Sylvia, a veteran Boston securities lawyer. “And there is a very minimalist case the defense put on.”

The securities fraud charge had been criticized by Mrs. Stewart’s lawyers as a violation of the First Amendment, and the judge herself has referred to it as “novel” and “problematic.”

The count accused Mrs. Stewart of trying to prop up the stock price of Martha Stewart Living Omnimedia when she claimed in 2002 that she had sold ImClone because of a deal with Mr. Bacanovic to dump the stock when it fell to $60. Mrs. Stewart personally stood to lose $30 million for every dollar her stock price dropped.

The government claims that was a lie, and that Mrs. Stewart sold because Mr. Bacanovic sent word to her that her friend, ImClone founder Sam Waksal, was frantically trying to sell his ImClone shares.

Still, many legal experts said they believed the charge was unprecedented, and Mrs. Stewart’s most avid supporters cried that she was being prosecuted for simply saying she was not guilty.

Judge Cedarbaum issued her decision just as lawyers in the case began meeting with her behind closed doors to discuss the instructions the judge will give jurors when they begin deliberating next week.

Mrs. Stewart herself was in the meeting with lawyers and the judge. Prosecutors declined to comment, and a spokesman for the U.S. Attorney’s Office did not immediately return a call for comment.

The securities fraud charge focused on three statements in 2002 — one on June 6 by her lawyer, and two on June 12 and June 18 by Mrs. Stewart herself.

Each time, the $60 agreement was given as the reason for Mrs. Stewart’s stock sale. Mrs. Stewart’s lawyers said she was just trying to clear her name, but the government contended that she was spreading a lie with deliberate purpose.

The judge conceded that Mrs. Stewart had a motive — her heavy investment in her own company — to deceive investors. But she said the government had not sufficiently shown an intent by Mrs. Stewart to defraud investors.

The judge also pointed out there was no evidence Mrs. Stewart showed particular concern for Martha Stewart Living’s stock price around the time of her statements. The stock price actually fell, from $19.01 on June 6 to $12.55 on June 24.

“Here, the evidence and inferences the government presents are simply too weak to support a finding beyond a reasonable doubt of criminal intent,” the judge wrote in a 23-page ruling.

Closing arguments in the trial are scheduled to begin Monday and last well into Tuesday. The jury is expected to receive its instructions and begin deliberating on Wednesday.

Mrs. Stewart’s lawyers still must convince the jury that she was not lying to investigators when she told them in 2002 that she had no memory of being tipped about Waksal.

The government’s star witness in the trial was Douglas Faneuil, the former Merrill Lynch & Co. assistant who claims he gave Mrs. Stewart the tip about Waksal on orders from Mr. Bacanovic, his boss.

Mrs. Stewart’s personal assistant also testified that Mrs. Stewart changed a computerized record of a phone message Mr. Bacanovic left for her on the day she sold ImClone stock — then ordered the assistant to change it back.

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