Prosecutor paints Stewart as liar

NEW YORK -- Martha Stewart lied to investigators and committed "serious federal crimes" by selling off stock based on a tip no one else had, a prosecutor charged Tuesday. But the defense said the case was based on speculation and guesswork.

In her opening statement in federal court, Assistant U.S. Attorney Karen Patton Seymour told jurors that Stewart had lied to federal agents, and "multiplied that lie by feeding it to investors in her own company."

"She was told a secret that no other investor had," Seymour said.

One count accused Stewart of deliberately trying to prop up the stock of her domestic lifestyle company, Martha Stewart Living Omnimedia, in 2002 by saying she had done nothing wrong and was cooperating with investigators.

"She tried to mislead investors ... to lift that dark cloud hanging over her reputation," Seymour said.

'Lack of direct evidence'

But Stewart's attorney, Robert Morvillo, said the case against his celebrity client was circumstantial at best.

The prosecution was based on "speculation, surmise and guesswork," Morvillo said in his opening statement. "And they will ask you to ignore the lack of direct evidence."

Morvillo banged his fist on the front rail of the jury box while telling the panel there was no record of Stewart and her stockbroker, co-defendant Peter Bacanovic, cooking up a false explanation for the stock sale.

And he suggested that Stewart was targeted in part because of her high profile. Morvillo said damaging leaks from unspecified members of Congress two years ago were made to drum up election-year publicity.

"There will be no direct evidence that Martha Stewart conspired to obstruct anything," Morvillo said.

Among those in the courtroom for the trial were Stewart's daughter, Alexis, and her mother, Martha Kostyra.

Stewart is accused of working with Bacanovic to concoct a story about why she sold 3,928 shares of ImClone Systems on Dec. 27, 2001 -- just before stock in the fledgling biotechnology company plunged when the government refused to review Erbitux, an ImClone cancer drug and the only drug in the company's pipeline.

The government claims Stewart was tipped that ImClone founder Sam Waksal was trying to dump his own shares in his company. Stewart and broker Peter Bacanovic, Stewart's co-defendant, say they had a pre-existing agreement to sell ImClone stock when it fell to $60 per share.

Waksal later pleaded guilty to securities fraud.

In discussing the case against Bacanovic, Seymour said he knew that it was against Merrill Lynch rules to pass information about one client's trading -- in this case Waksal -- to another.

"He knew that he couldn't do it. But he didn't want his friend Martha Stewart sitting on a stock that was about to be obliterated by bad news."

Bacanovic's attorney, Richard Strassberg, told jurors that post-sale phone calls between his client and Stewart were not part of a cover-up, but a routine part of business.

"They have rushed to bring a case against Ms. Stewart," Strassberg said of the government, "and in that rush to judgment they have charged an innocent man."

The jury of eight women and four men was seated Monday. U.S. District Judge Miriam Goldman Cedarbaum told them it was critical that they decide the case only on the evidence -- and ignore the onslaught of media coverage surrounding Stewart's every move.

The judge had complained about heavy pretrial publicity and had barred reporters from watching jury selection.

Even before opening statements began, Cedarbaum dealt Stewart a setback Monday. Cedarbaum said Stewart's defense could not argue that she is being prosecuted merely for claiming she was innocent.

Waksal is serving a prison sentence of more than seven years after tipping his daughter to sell her shares of ImClone. The FDA, meanwhile, is expected to approve ImClone's Erbitux sometime in the first quarter.

On Monday, a federal appeals court heard arguments on whether Cedarbaum went too far in closing jury selection. The judge did release transcripts.

The judge said she closed the process because she wanted potential jurors to be as candid as possible. But 17 media organizations, including The Associated Press, say such proceedings are normally held in open court. An appeals court ruling would come too late to affect the Stewart trial but could affect future cases.