Stewart Finally Catches Break
Prosecutors in the Martha Stewart obstruction trial were barred Friday from calling expert witnesses who would testify that Stewart's many claims of innocence amounted to a plot to mislead investors in her own company.
The ruling by U.S. District Judge Miriam Goldman Cedarbaum is a blow to the government, which is trying to convict Stewart of securities fraud for her alleged failure to tell the truth about her sale of
ImClone
stock in December 2001.
Barred was "any expert testimony on whether a reasonable investor would have considered the statements important in making an investment decision" about
Martha Stewart Living Omnimedia
(MSO)
, Cedarbaum ruled.
Stewart and her former broker at Merrill Lynch, Peter Bacanovic, are also charged with obstruction of justice for allegedly lying about the reason behind the sale, which occurred the same day ImClone founder Sam Waksal tried to unload his own shares through Bacanovic's office.
From a sentencing perspective, securities fraud is the more serious crime, carrying a potential sentence of 10 years. While Stewart isn't charged with insider trading, prosecutors said she propped up the stock of Martha Stewart Living and committed securities fraud with a series of statements proclaiming her innocence.
Stewart and Bacanovic said the fortuitous stock sale occurred under an informal agreement between them to dump it when it fell below $60 a share. That in fact happened on Dec. 27, 2001, the date of the sale. But prosecutors say Stewart sold when Bacanovic's assistant alerted her to Waksal's selling.
The investigation of Stewart became public in June 2002, at which time the stock was trading for more than $19. It fell sharply following word of the probe, rarely going above $10 in the ensuing months until December 2003, when it perked up on optimism Stewart might be acquitted, going as high as $13.40 on Feb. 2, 2004.
The stock was recently down 11 cents Friday, or 1%, to $11.65. Stewart resigned as its chief executive in June 2003.
The rest of Friday's proceedings consisted of testimony from Catherine Farmer, an FBI agent who was present when investigators interviewed Stewart about her ImClone trade on Feb. 4, 2002. Farmer was asked about a phone log that Stewart's assistant testified Tuesday was changed by her former employer.
Farmer testified that one investigator asked Stewart, "Is there a message log?"
"She said she didn't know," Farmer said, adding that her lawyer said, "If there is a log we will provide one."
Stewart lawyer Jack Tigue said the absence of a court reporter meant that Farmer's note -- the only notes kept by the government of the meeting -- were fallible.
Tigue asked Farmer, "The statement that she didn't know there was a log was not in your notes?"
"No," Farmer said.
"And you were the only one there from U.S. government there taking notes?"
"Yes," Farmer said.
Also discussed was Marina Pasternak, Stewart's best friend and her travel companion for the Dec. 27, 2001, trip to Mexico. Farmer testified that Stewart discussed what she told her friend on the tarmac in San Antonio, where she was finally reached by Bacanovic's office and agreed to sell the ImClone shares.
Farmer said Stewart was asked by investigators what she told her friend, to which she replied, "I may have told her the reason but I don't remember."
The testimony was set to continue Friday afternoon.
Meanwhile, Martha Stewart Living was also sued Friday by
Kmart
(KMRT)
, one of its distributors, in an effort to amend a royalty agreement. Kmart wants to reduce the total guarantees due Martha Stewart Living this year from about $52.0 million to $47.5 million. It also wants to slash their joint advertising layouts by up to $2 million a year.
The company said it would oppose the complaint.