Prosecution: Martha Stewart Tried to Lie to Investigators

NEW YORK – Martha Stewart (search) and her stockbroker concocted a flimsy cover story about why the homemaking icon sold her ImClone Systems (IMCL) stock and left a "trail of evidence" exposing their lies, a federal prosecutor said Monday in closing arguments.

In a methodical three-hour closing argument, prosecutor Michael Schachter told jurors that Stewart and broker Peter Bacanovic believed they would never get caught.

"But Martha Stewart and Peter Bacanovic (search) were wrong," Schachter said. "They left behind a trail of evidence exposing the truth about Martha Stewart's sale and exposing the lies they would tell."

Stewart and Bacanovic face nine federal counts related to the sale of about $225,000 worth of stock on Dec. 27, 2001, the day before the stock tanked on news that the government declined to review an ImClone cancer drug.

Prosecutors say Bacanovic sent word to Stewart that ImClone CEO Sam Waksal (search) and his family were frantically dumping their own shares.

On Monday, Schachter tried to dismantle the centerpiece of the pair's defense -- that they had struck a deal before Dec. 27 to sell Stewart's shares when ImClone stock dropped below $60. The prosecutor called the story "phony," "silly" and "simply an after-the-fact cover story."

Baconovic's lawyer fired back by attacking the credibility of the government's star witness and comparing the government's case with a house of cards.

"When you push on it, when you look at it closely, it collapses," Richard Strassberg said. "Because it has no substance. It has no foundation."

Stewart took notes during the arguments and, as she has done throughout the trial, maintained a grim poker face. Her lead attorney was to make his case Tuesday, with the jury to begin deliberating as early as Wednesday.

The prosecutor listed seven reasons jurors would know the $60 agreement is a lie. Among them: The pair have no record of having made the plan, other than a worksheet produced by Bacanovic with the notation "[at] 60" next to ImClone stock -- in a different ink from other marks on the page.

Schachter also listed inconsistencies -- mistakes, he called them -- in the stories Stewart and Bacanovic told federal investigators looking into the ImClone trade in early 2002.

For example, Bacanovic claimed they had the $60 conversation on Dec. 20, 2001. But Stewart placed it in late October or early November.

And Schachter said that Stewart's attempt to change the log of a message Bacanovic left her was evidence of a guilty conscience. Stewart quickly ordered her assistant to restore the message to its original wording, according to the assistant's testimony.

"This event is devastating evidence that she committed the crimes that she's charged with," he said.

Last week, U.S. District Judge Miriam Goldman Cedarbaum dismissed the top count of securities fraud, which accused Stewart of misleading investors in her own company when she claimed publicly that she sold ImClone because of the $60 deal. The judge said the government had failed to provide enough evidence of criminal intent by Stewart.

The dismissal left jurors to grapple with one central question -- whether Stewart and the broker lied to the government about the stock sale.

The remaining counts against Stewart carry up to 20 years in prison, although federal sentencing guidelines could mean a sentence of just a year or so if she is convicted on all counts.

The charges against Bacanovic carry 25 years, but the guidelines would similarly reduce his sentence.

Strassberg spent more than two hours attacking the credibility of Douglas Faneuil, the former Merrill Lynch & Co. assistant who said he passed the tip about the Waksals from Bacanovic to Stewart. Faneuil and the government have a cooperation agreement -- clear motive for him to "shade the truth," Strassberg said.

Strassberg insisted Faneuil was starstruck by Stewart, and suggested it was he who came up with the idea to tell Stewart about the Waksal selling.

"He lies by just twisting a few little facts, a few key facts," Strassberg said. "But those facts are crucial."

Strassberg also stressed Bacanovic's reputation as a trustworthy, meticulous broker and said Bacanovic never would have risked his career for the Stewart trade, which earned him just $450 in commissions.

The broker taking such a risk "makes no sense," Strassberg said.

Actor Brian Dennehy (search) showed up in court Monday to support Stewart, the latest in a string of pro-Stewart celebrities in attendance. Bill Cosby (search) was in court last week, and Rosie O'Donnell (search) appeared early in the trial, jokingly offering a prosecutor a bag of peanut M&M's as a bribe to drop the case.