Stewart trial over stock sale set to begin today

Tuesday, January 20, 2004

NEW YORK -- Martha Stewart, the creative force behind what was once a $1 billion empire of domestic "good things," is due in court today to face trial on charges she lied about a well-timed stock sale that saved her $51,000.

In a judge's private robing room, potential jurors will face Stewart and answer questions from attorneys trying to pick a jury. Opening arguments will begin once 12 jurors are seated -- possibly as early as this week.

Stewart, charged with five counts including obstruction of justice and securities fraud, is by far the best-known figure to face a judge since the government's crackdown on white-collar corruption began two years ago.

Legal experts say the outcome is nearly impossible to predict, and will come down to which version of the stock sale convinces jurors -- Stewart's story or the government's account, backed by a former brokerage assistant who will be its star witness.

"It's going to be a classic battle of witnesses," said George Newhouse, who prosecuted obstruction cases for the Justice Department before going into private practice. "The stakes have risen. The government's credibility is on the line."

The government says Stewart saved about $51,000 by selling stock in ImClone Systems on Dec. 27, 2001 -- just before a negative government report about a highly touted ImClone cancer drug sent the stock plummeting.

Stewart claims she sold because she and her broker, Peter Bacanovic of Merrill Lynch & Co., had a standing agreement to sell when the stock fell to $60. Bacanovic faces five counts of his own and will stand trial with her.

But the government says she was tipped that ImClone founder Sam Waksal was trying to unload his shares.

The government's star witness, former Merrill assistant Doug Faneuil, 28, is expected to testify that the government's account of the stock sale is accurate -- and that he was plied with gifts in exchange for initially supporting Stewart's version. Faneuil changed his story in 2002, pleaded guilty to a misdemeanor and agreed to cooperate with the government.

The evidence includes a telephone message log of a call from Bacanovic that Stewart temporarily altered, as well as a worksheet that the government says Bacanovic altered to support the story of a standing agreement to sell at $60.

But the defense presents a compelling argument as well: Why would Stewart, herself a former stockbroker, deliberately break the law and risk a fortune to save what was, for her, a small amount of money?

Legal experts say it will come down to whom the jury believes, and why.

"People will not dislike a defendant simply because she has a lot of money, but if she uses that as power to cheat the system, then jurors get angry," said Arthur Patterson, a senior vice president of jury consulting firm DecisionQuest.

Conviction on any of the five counts against her could land Stewart in federal prison, doing untold damage to her reputation and her company, Martha Stewart Living Omnimedia, where she remains chief creative officer.

The most serious count against her is securities fraud. Carrying a potential prison sentence of 10 years, it alleges that Stewart deceived her own shareholders by publicly declaring her innocence in 2002.

The defense has characterized the charge as an unprecedented infringement on a defendant's First Amendment rights, and even the judge in the case called the charge "novel."

But prosecutors say Stewart went further than simply predicting she would be exonerated. "Instead, Stewart gave a forceful, detailed and false explanation for her sale of ImClone," prosecutors said in court papers.

U.S. District Judge Miriam Goldman Cedarbaum has barred the media and the public from watching the juror-questioning process, saying she is worried prospective jurors may be less candid if they know reporters are present. Instead, a transcript of each day's questioning will be released the following day.

Stewart has said in a TV interview that she is afraid of going to prison but does not believe she will be found guilty. She has used a Web site to rally the support of her fans.

"I want you to know that I am innocent," she wrote on the site, "and that I will fight to clear my name."

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