Stewart Board Stands Behind Maligned Martha

Also, defense lawyers say it appears that much of the case against Stewart may be based on circumstantial evidence or testimony from less-than-savory witnesses, including Douglas Faneuil, the former assistant to Stewart's broker at Merrill Lynch. Faneuil has pleaded guilty to a misdemeanor charge and has agreed to cooperate with prosecutors.

Faneuil reportedly has told prosecutors that he told Stewart of former ImClone chairman Sam Waksal's attempt to sell much of his stock prior to the release of a negative regulatory ruling on a key cancer-fighting drug. Waksal pleaded guilty to insider trading charges last year. He is scheduled to be sentenced June 10.

A lawyer who didn't want to be identified said Stewart's is a tough case because much of the evidence seems to be based on "oral" communications. That's one reason many speculate Stewart won't be charged with insider trading, but rather with obstruction of justice.

Privilege

Another reason prosecutors may have difficulty filing insider trading charges could be a recent ruling from a federal judge in New York. In a decision handed down on May 1, U.S. District Judge Lewis Kaplan held that some conversations between the target of a grand jury investigation and a public relations firms can be subject to the attorney-client privilege, if they relate to the handling of the "client's legal problems."

The decision, reported first in Tuesday's edition of The New York Law Journal, doesn't identify the alleged target of the investigation or the PR firm in question. But in concealing the identities of the parties, Judge Kaplan said the investigation is being led by Southern District U.S. Attorney James Comey -- the prosecutor leading the Stewart investigation. The judge also said the investigation in question "has been a matter of intense press interest and extensive coverage for months."

The speculation in the New York legal community is that decision stems from the grand jury investigation of Stewart and could complicate the prosecution's case.