Denials by Stewart Under Assault

Prosecutors tried to prove Wednesday that Martha Stewart propped up the stock price of her own company by lying to investors about why she sold ImClone Systems Inc. stock.

The government introduced a stock chart that showed spikes in the price of Martha Stewart Living Omnimedia Inc. just after Stewart issued statements in June 2002 denying wrongdoing.

In the statements, on June 12 and 18, Stewart insisted she had had a deal with her broker, Peter E. Bacanovic, to sell ImClone shares when they fell to $60.

The government claims the real reason for the sale was that Stewart was tipped that ImClone founder Samuel D. Waksal was trying to sell his shares.

Stewart sold on Dec. 27, 2001, just before the government rejected ImClone’s application for review of a cancer drug, which pulled down the stock price.

Prosecutors claim Stewart misled investors with the June 2002 statements and was trying to protect the hundreds of millions of dollars of shares that she owned in her company.

The charge of securities fraud carries a maximum prison term of 10 years. It is the most serious of the five counts Stewart faces. Four other counts accuse her, in various ways, of lying to investigators about why she sold ImClone stock.

The government claims Bacanovic sent word to Stewart through an assistant the day of the sale that Waksal was trying to dump his shares. But Stewart was not charged with knowing about the insider information that led Waksal to sell.

Earlier in the day, Stewart attorney Robert G. Morvillo tried to show jurors that Stewart simply was trying to discredit inaccurate reports when she issued the statements saying her ImClone stock sale was proper.

He showed jurors news reports from early June 2002 that speculated she sold the stock on insider information and was romantically linked to the now-imprisoned Waksal, which Stewart has denied.

Also Wednesday, a federal appeals court ruled that the trial judge was wrong to bar the news media from jury selection.

U.S. District Judge Miriam Goldman Cedarbaum said she kept reporters out of the process because she was worried jurors might be less forthcoming about possible bias if they knew reporters were watching.

But the U.S. 2nd Circuit Court of Appeals called the media “a vital means to open justice” and said she had not met the heavy burden required to close jury selection.