- The Washington Times - Tuesday, January 27, 2004

NEW YORK (AP) — Martha Stewart sold stock based on “a secret tip,” then told an avalanche of lies to save her reputation and enormous fortune, a federal prosecutor said yesterday in laying out the case against the homemaking entrepreneur.

Mrs. Stewart’s attorney insisted the case was based on “speculation, surmise and guesswork.”

The jury of eight women and four men listened to three hours of opening statements that outlined starkly different portrayals of Mrs. Stewart’s sale of nearly 4,000 shares in the biotechnology company ImClone Systems on Dec. 27, 2001.

The government contends that Mrs. Stewart, on her way to a vacation in Mexico, was tipped that ImClone founder Sam Waksal was trying to dump his own shares, then ordered her own shares sold.

Assistant U.S. Attorney Karen Patton Seymour said Mrs. Stewart then conspired with her stockbroker, Peter Bacanovic, to tell a series of cover-up lies about the sale.

“The reason that Martha Stewart dumped her shares is because she was told a secret,” Miss Seymour said. “A secret tip that no other investors in ImClone had.”

Mrs. Stewart was almost motionless as the arguments unfolded in front of her, resting her chin on her hand and occasionally tapping an index finger against her lips.

She faces up to 30 years in prison on charges that include obstruction of justice and securities fraud, but would likely get a far lighter penalty if convicted. Mr. Bacanovic is also charged with five counts and faces 25 years.

Attorneys for Mrs. Stewart and Mr. Bacanovic aimed to convince jurors that the two defendants had done nothing out of the ordinary for a diligent broker and responsible client, arguing they had decided six days before the ImClone sale to get rid of the stock if it fell to $60.

Mr. Waksal later admitted he was tipped that federal regulators were about to issue a negative report on ImClone’s only drug, the cancer medicine Erbitux. That report sent the stock plummeting. Mr. Waksal later pleaded guilty to securities fraud and has begun serving a prison term of more than seven years.

Mr. Bacanovic knew it was against the policy of his firm, Merrill Lynch & Co., to pass information about one client’s trades to another, Miss Seymour said.

But, the prosecutor said, he made sure word of Mr. Waksal’s sale was passed along to Mrs. Stewart.

“He knew he couldn’t do it,” she said. “But he didn’t want his friend, Martha Stewart, sitting on a stock that was about to be obliterated by bad news.”

Mrs. Stewart’s attorney, Robert Morvillo, pointed out that 7 million shares of rapidly falling ImClone were sold on the day Mrs. Stewart sold hers. She avoided $45,673 in losses on the shares by selling before the bad news was made public.

Mr. Bacanovic’s attorney, Richard Strassberg, said the broker made a paltry $450 on the sale.

“They have rushed to judgment to bring a case against Mrs. Stewart, and in that rush to judgment they have charged an innocent man,” Mr. Bacanovic’s lawyer, Richard Strassberg, said.

At one point, Mr. Morvillo banged his fist on the front rail of the jury box and said there was no record Mrs. Stewart and Mr. Bacanovic had talked after the stock sale to discuss their supposedly cooked-up $60 story.

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