Lawyers for Martha Stewart Ask Court to Overturn 'Unfair' Conviction

Lawyers for Martha Stewart (search) asked a federal appeals court to overturn her conviction for lying about a stock sale, arguing that her trial was "fundamentally unfair" because prosecutors suggested she was accused of insider trading.

In documents made public Thursday, Stewart's attorneys said prosecutors and the trial judge prevented the jury from understanding that Stewart was never charged with that crime — only with deceiving investigators.

"A barrage of pretrial leaks and in-court accusations left the indelible impression that she was guilty of that offense," her lawyers argued in statements filed late Wednesday with the 2nd U.S. Circuit Court of Appeals. "Tarring Stewart with an uncharged, highly inflammatory crime was fundamentally unfair."

Prosecutors told jurors that Stewart had received a "secret tip" about her stock in the biotechnology company ImClone Systems Inc. (IMCL) just before she sold it, and said the case was about "cheating investors in the stock market."

Stewart sold ImClone on Dec. 27, 2001, a day before a negative report that sent the price tumbling. Prosecutors said she sold because she learned that ImClone founder Sam Waksal (search) was selling.

Waksal pleaded guilty to insider trading after prosecutors said he had advance word of the negative report — a damaging government decision about an ImClone cancer drug.

Stewart was never formally accused of having insider knowledge of the drug decision, but her lawyers argued to the appeals court that prosecutors tried to equate Waksal's conduct to Stewart's at the trial.

"All this argument and evidence was clearly designed to suggest not just that Stewart had a motive to lie, but that she had committed insider trading," Stewart's attorneys said in the appeal.

Stewart and former stockbroker Peter Bacanovic (search) were each sentenced to five months in prison and five months of house arrest after the jury convicted them of lying to investigators about the stock sale.

Both were allowed to remain free while they appealed. Stewart began serving her time anyway, and earlier this month reported to the minimum-security federal prison in Alderson, W.Va.

Walter Dellinger, the lawyer leading the appeal, said Thursday on NBC's "Today" that Stewart was "making the best of what's necessarily a difficult situation" in prison.

"She's got a group that's cooking," he said. "She's trying to figure out innovative ways to do microwave cooking, which is all they have in the evening to do their own cooking."

Bacanovic, who remains free on bail, also asked the appeals court Wednesday to overturn his conviction. He argued his own right to a fair trial was tainted when the judge refused to separate his case from Stewart's.

Legal experts have said they both face an uphill battle in getting their convictions overturned. Prosecutors will file opposing papers, and the cases should be argued before the appeals court in early 2005.