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Friday, February 27, 2004

Martha Stewart Trial: Judge Drops Most Serious Charge

The federal judge overseeing the trial of Westports Martha Stewart today dropped one of the most serious charges against her—securities fraud.

The action came after media organizations reported that proposed instructions to the jury that the judge shared with lawyers Thursday night still contained the charge, according to a person briefed on the draft document.

Jury deliberations will begin next week on the remaining charges against Stewart and her former stockbroker, Peter Bacanovic.

Judge Miriam Goldman Cedarbaum had made clear she had doubts about the validity of the charge, which carried a possible 10-year prison term.

The charges Cedarbaum left intact against Stewart included conspiracy, obstruction of justice, and two counts of lying to investigators.

Each count carries a possible maximum prison term of five years.

The judge declined to throw out any of the five charges against Bacanovic.

“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,” Cedarbaum wrote.

There was no immediate reacton from Stewart who was in conference with the judge on her instructions to the jury.

The media learned of the judge’s ruling in a 23-page opinion distributed by court officials.

Cedarbaum issued her decision just as lawyers began meeting with her to hammer out instructions she will give the jury when it begins deliberations next week.

Closing arguments in the trial are scheduled to begin Monday, with deliberations expected to begin Wednesday.

Stewart and Bacanovic are accused of lying to investigators about why Stewart sold 3,928 shares of ImClone stock on Dec. 27, 2001, just before it dropped on a negative government review of the ImClone cancer drug Erbitux.

The securities fraud count accused Stewart of trying to prop up the stock price of her company six months later by issuing false public statements about why she sold ImClone stock.

Stewart at the time stood to lose $30 million for every dollar the stock dropped.

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 Stewart herself.

Each time, the $60 agreement was given as the reason for Stewart’s stock sale.

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 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 Stewart to defraud investors.

“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.

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 Stewart the tip about Waksal on orders from Bacanovic, his boss.

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

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Posted 02/27/04 at 03:24 PM  Permalink



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