Stewart’s Lawyers Must Divulge Billing Records

Lawyers for Martha Stewart, who goes on trial next month on charges of obstructing justice and securities fraud, must turn over their billing records to federal prosecutors, a New York judge ruled Monday.

The stock-fraud count against Stewart is based on statements she made to news organizations about her sale of ImClone Systems Inc. shares. Prosecutors say her statements were intended to prop up stock in her company, Martha Stewart Living Omnimedia Inc.

Stewart has defended herself in part by saying that anything she said publicly about her innocence was based on legal advice and thus wasn’t an attempt to defraud investors. U.S. District Judge Miriam Cedarbaum ruled that prosecutors could subpoena the billing records of the New York law firm Wachtell Lipton Rosen & Katz, which represented Stewart when she made the statements.

Prosecutors are seeking to determine whether Stewart was talking with the Wachtell Lipton lawyers about the case and what may have been said. The ruling may help the prosecution, giving it an opportunity to delve more deeply into Stewart’s relationship with her lawyers.

Stewart’s current lawyer, Robert Morvillo, said the ruling was on a procedural motion and that he “won the bulk of it.” Cedarbaum denied government requests for three other types of law-firm documents, as well as a second subpoena directed at Peter Bacanovic, Stewart’s former broker and co-defendant.

Stewart is accused of defrauding investors when she made public statements about her sale of ImClone shares, proclaiming her innocence in an effort to shield her company from bad publicity over insider trading allegations, according to prosecutors.

Stewart’s lawyers at the time of her public statements, Wachtell’s John Savarese and Lawrence Pedowitz, both on vacation, didn’t return calls seeking comment.