- NEW YORK (AP) -- A
federal judge dealt a blow Friday to the government's effort to prove that
Martha Stewart committed securities fraud when she publicly proclaimed
her innocence.
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- U.S. District Judge Miriam Goldman Cedarbaum blocked
any expert testimony on whether investors in Stewart's homemaking empire
would have considered Stewart's public statements important.
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- The securities fraud count -- the most serious count
against Stewart -- accuses her of propping up the stock price of her own
company, Martha Stewart Living Omnimedia, by claiming in 2002 that her
sale of ImClone Systems stock was proper and that she was cooperating with
authorities.
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- Securities fraud carries a potential 10-year prison sentence.
Each of the four other charges against Stewart carries five years. If convicted
on any count, she would probably get much less than the maximum.
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- In her ruling, Cedarbaum granted a request by Stewart
to block expert testimony on the "materiality" of Stewart's statements
in 2002.
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- Prosecutors will be barred from introducing stock research
reports and from calling stock analysts to testify to the effect Stewart's
statements had on the stock price, according to the Stewart defense.
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- The ruling, issued with the jury out of the room, blocks
testimony on "whether a reasonable investor would have considered
the statements important in making an investment decision," the judge
said.
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- Stock charts
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- The decision could still allow prosecutors to introduce
stock charts to show Stewart's company's stock rose after her statements.
But it would be left to the jury to decide whether the statements led to
the gains.
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- "I think it's potentially very significant,"
Stewart spokesman George Sard said. Asked whether Stewart was pleased,
he said: "I haven't talked to her, but I think that's a fair inference."
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- Stewart is accused of lying to investigators about why
she dumped 3,928 shares of ImClone on Dec. 27, 2001 -- just before the
stock plunged on negative news about its experimental cancer drug.
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- Stewart claims she and her broker, Peter Bacanovic, had
a standing agreement to sell when the stock fell below $60. But the government
says Bacanovic, through an aide, alerted Stewart that ImClone founder Sam
Waksal was dumping his shares.
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- The negative news was that the Food and Drug Administration
had rejected an application for the drug Erbitux. The FDA finally approved
the drug Thursday, and ImClone stock was sharply higher Friday.
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- In front of jurors Friday, Stewart's defense tried to
call into question the accuracy of notes taken by an FBI agent at Stewart's
two interviews with investigators, in February and April 2002.
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- Agent Catherine Farmer's notes are the only record of
the interviews and form the basis for the government's accusations that
Stewart lied.
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- Farmer took notes on the two meetings, then typed routine
summaries of them, called FBI 302 reports, based on her notes and memory.
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- In Stewart's interview Feb. 4, 2002, Farmer's 302 report
shows Stewart claimed she did not know whether there was a record at her
office of a call from Bacanovic on the day she sold her ImClone stock.
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- But under questioning from Stewart lawyer John Tigue,
Farmer conceded the information in the 302 report -- written immediately
after the interview -- came from her memory only and did not appear in
her notes.
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- 'Brand new' to case
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- "It's possible to miss important things, and you
were brand new to the case, weren't you?" Tigue asked.
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- "Yes, the case was just assigned," Farmer replied.
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- Prosecutor Karen Patton Seymour, trying to protect Farmer's
credibility, pointed out that the FBI always relies on notes in its voluntary
interviews -- never court reporters or tape recordings.
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- "Was Martha Stewart treated any differently than
anyone else who submits to a voluntary interview?" Seymour asked Farmer.
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- "No," the agent replied.
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