Stewart Prosecutors Prepare Closing Arguments

Closing arguments begin this week in the Martha Stewart (searchstock trial, though prosecutors have been forced to drop their most serious accusation against the domestic diva.

Last week, U.S. District Judge Miriam Goldman Cedarbaum (searchtossed out the government's charge that Stewart lied to investors in her own media empire, Martha Stewart Living Omnimedia (MSO), by saying her ImClone Systems (IMCL) sale was proper.

Cedarbaum's action left prosecutors to try to persuade a jury of eight men and four women to convict the domestic style-setter of conspiracy, obstruction of justice and lying to investigators.

Prosecutors were set to begin their closing arguments Monday, with the defense to follow, possibly on Tuesday. The jury could get the case as early as Wednesday.

The judge's ruling allows Stewart's lawyer, Robert Morvillo, to streamline the issues in the case for the jury, said Timothy Hoeffner, a Philadelphia white-collar crime lawyer.

"It permits Morvillo to focus his closing statement on the core issues in the case — did Martha Stewart lie to the government, and did she obstruct justice?" he said.

Those charges spring from Stewart's sale of 3,928 shares of ImClone Systems stock on Dec. 27, 2001 — just before it declined sharply on a negative government report on an ImClone cancer drug.

The government says Stewart and broker Peter Bacanovic (searchlied to cover up the true reason for the sale: Bacanovic sent word to Stewart that ImClone CEO Sam Waksal was trying to sell his own shares.

Cedarbaum found there was not sufficient evidence that Stewart showed an intent to deceive investors when she issued three statements explaining the ImClone sale in June 2002. If Stewart had been convicted of that charge, she could have faced 10 years in prison, double the potential terms of any other count in the case.

But four counts remain against Stewart and five remain against Bacanovic, all somehow related to what prosecutors say was a cover-up. Legal analysts say an acquittal for either is far from certain.

Prosecutors were expected to highlight three critical pieces of testimony against Stewart:

— Douglas Faneuil, Bacanovic's former assistant at Merrill Lynch & Co., testified Bacanovic ordered him to alert Stewart that the Waksal family was selling its shares of ImClone.

While Stewart is not charged with insider trading, among the charges is that Stewart lied when she told the government she had no memory of being told about the Waksal sales.

— Ann Armstrong, a longtime assistant, testified Stewart personally altered a computer log of a Dec. 27, 2001, message from Bacanovic — just days before she went in for her first interview with investigators.

— And Mariana Pasternak, who has known Stewart for more than 20 years, said Stewart confided to her on a lush Mexican vacation that she knew in advance about the Waksal sales.

Pasternak testified Stewart told her: "Isn't it nice to have brokers who tell you those things?" She admitted under cross-examination that the remark could have been something she thought, rather than something Stewart said.