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Martha Defense Hopes Judge Drops Some Charges

After 21 witnesses and 14 days of testimony, the prosecution in Martha Stewart's (searchtrial has rested. Now defense attorneys hope a judge will lighten their load.

U.S. District Judge Miriam Goldman Cedarbaum (searchwas to hear arguments Monday about whether parts of the indictment against the domestic diva should be dismissed.

Cedarbaum appears particularly interested in the possibility of throwing out the securities fraud count against Stewart, which accuses her of deceiving investors in her media conglomerate, Martha Stewart Living Omnimedia (MSO).

The judge has called that charge "the most problematic" of the five counts each against Stewart and broker Peter Bacanovic (search). Cedarbaum indicated it was highly unlikely she would dismiss all the counts.

The government contends that Bacanovic told Stewart that ImClone Systems (IMCL) founder Sam Waksal (searchwas frantically trying to sell his shares. Bacanovic and Stewart claim they had agreed to unload the ImClone shares when the stock price hit $60.

Lawyers for the government, Stewart and Bacanovic will each get 20 minutes to present their arguments before Cedarbaum on Monday. The defense will then get its chance to present its case.

The securities fraud count, which the judge herself has called "novel," refers to three statements Stewart and her lawyers made in June 2002 in which they insisted she sold because of the $60 agreement.

Prosecutors say that was a deliberate play to keep the stock price of Martha Stewart Living Omnimedia high. Stewart owned nearly all of the voting shares in the company, and stood to lose $30 million for every dollar MSLO stock fell.

Besides securities fraud, the remaining counts relate to whether Stewart and Bacanovic tried to hide the true reason Stewart sold 3,928 shares of ImClone stock on Dec. 27, 2001, just before it took a dive.

In a brief argument Friday on the securities fraud charge, Cedarbaum pressed prosecutor Karen Patton Seymour to prove Stewart intended to defraud investors.

Seymour pointed to a speech Stewart gave at an investor conference on June 19, 2002 — an appearance she was not required to make — in which she tried to calm investor worries by claiming her ImClone sale was proper.

"She knew and she hoped investors would rely on her word," Seymour said. "She didn't just say it for no reason. She said it purposefully."

Stewart lawyer Robert Morvillo said Stewart was simply trying to clear her name against a rumor that eventually proved to be false — speculation that she had advance word that the government would reject an application to review ImClone's cancer drug.

The government never criminally accused Stewart of knowing about the report — only that Waksal was trying to sell.