Prosecutors chart stock-price spikes in Stewart case

By Erin McClam
Associated Press

NEW YORK — Pointing to fluctuations on a stock graph, prosecutors attempted to prove yesterday that Martha Stewart tried to prop up the value of her own company by lying to her investors about why she sold ImClone Systems stock.

Jurors saw a bright red chart of Martha Stewart Living Omnimedia stock that showed brief spikes in the price after the domestic entrepreneur issued two statements in June 2002 denying wrongdoing in the ImClone investigation.

In both statements, Stewart denied receiving advance word on Dec. 27, 2001, just before she dumped ImClone stock, that the government would decline to review ImClone's cancer-fighting drug. The government never charged her with insider trading.

But Stewart also insisted that she and her stockbroker had a prior deal to sell ImClone when it fell below $60. The government contends that agreement never happened, and that Stewart was tipped that ImClone CEO Sam Waksal was trying to sell.

Prosecutors contend that Stewart, trying to protect the hundreds of millions of dollars she had in her own company's stock, was misleading her investors. The charge, securities fraud, is the most serious of the five against her.

U.S. District Judge Miriam Goldman Cedarbaum has called the charge "novel," and Stewart lawyer Robert Morvillo indicated yesterday he would ask her to dismiss the count when the government rests its case later this week.

Stewart and broker Peter Bacanovic are charged with other crimes, including conspiracy and obstruction of justice, related to Stewart's explanation for her ImClone sale.

The government and defense spent much of the day highlighting for jurors segments of news articles that appeared after word of the ImClone probe broke in June 2002.

The judge repeatedly warned lawyers and the jury that the articles were not evidence.

"The fact that you hear what the articles say does not mean that any of those statements are true," Cedarbaum told jurors at one point. "It just means that was the publicity at the time."

Morvillo pointed to news accounts speculating that Stewart sold the stock on insider information and was romantically linked to Waksal, which Stewart has denied. Waksal is serving a seven-year prison sentence for insider trading.

In one, a Minnesota Public Radio anchor says: "It looks like Martha Stewart may have kissed and sold."

Stewart lawyers also suggested any boost the stock price received from her statements, on June 12 and June 18, 2002, was short-lived. Martha Stewart Living Omnimedia dropped from $19.01 on June 6 to below $15 on June 19.

But prosecutors pointed to articles that showed investors were jittery about Stewart's connections to Waksal, a longtime friend, after Waksal was arrested on June 12, 2002.

"The government highlights these portions to show what the market thought was important at the time," prosecutor Michael Schachter told the judge outside jurors' presence.

Prosecutors said they expect to rest their case late today or tomorrow.

Stewart faces up to 30 years in prison on the counts she is charged with, while Bacanovic faces 25. If convicted, either would likely receive much less time under a Congress-mandated formula judges use to determine sentences.

Meanwhile yesterday, a federal appeals court ruled that the judge overseeing the trial was wrong to bar the news media from jury selection.

Cedarbaum said she kept reporters out of the process — usually open — because she was worried jurors might be less forthcoming about possible bias if they knew reporters were watching.

But the 2nd U.S. Circuit Court of Appeals, in a broad critique of Cedarbaum's decision, called the media "a vital means to open justice" and said she had not met the heavy burden required to close jury selection.

"The mere fact of intense media coverage of a celebrity defendant, without further compelling justification, is simply not enough to justify closure," the appeals court ruled.

Seventeen media organizations, including The Associated Press, had argued that high public interest should not close jury selection.

The appeals court said it knew its ruling was too late to make a difference in the Stewart trial, which began last month. But it said the issues remained relevant because they likely would arise in future trials.