Feds: Martha Deliberately Lied

Martha Stewart knew going into a meeting with federal authorities in 2002 that she would lie about her sale of ImClone Systems stock, a prosecutor said Monday in closing arguments at her trial.

"She would conceal from the FBI and the (Securities and Exchange Commission) the true reason for her sale," said Assistant U.S. Attorney Michael Schachter. "Martha Stewart would lie."

He described how Stewart and her co-defendant, broker Peter Bacanovic, hatched a cover story claiming that they had a prearranged agreement to sell ImClone at $60.

"Martha Stewart probably thought she would never get caught," said Schachter. But she "left behind a trail of evidence," including an altered phone log, which, combined with the testimony of brokerage assistant Douglas Faneuil, proves her guilt, he said.

"If you believe Douglas Faneuil's testimony, this trial is over," said Schachter.

He argued that Faneuil is credible because he came forward on his own and admitted he had lied to law enforcement officials about "a powerful person."

Faneuil lost his job and pleaded guilty to a crime that could put him in prison for a year. Given all that, "Why on earth would somebody make this up?" the prosecutor asked.

Last week, U.S. District Judge Miriam Goldman Cedarbaum tossed out the government's charge that Stewart lied to investors in her own media empire, Martha Stewart Living Omnimedia, by saying her ImClone Systems sale was proper.

Cedarbaum's action left prosecutors to try to persuade a jury of eight men and four women to convict the domestic style-setter of conspiracy, obstruction of justice and lying to investigators.

Before the closings began Monday, Cedarbaum informed the jury that the top count had been removed "for reasons of law that are not of your concern. It should not enter into your deliberations in any way."

It won't be enough for prosecutors just to show that Stewart lied, said one court-watcher.

"They have to paint a more sinister package of what Martha Stewart did, that it was intent to obstruct justice and deceive the investigators," said CBS News Legal Analyst Wendy Murphy.

Obstruction of justice may be difficult to prove, Murphy says, but convincing the jurors Stewart lied won't be.

"I believe they'll think she lied that she had a preexisting agreement to sell when ImClone stock hit $60 or $61," the former prosecutor said on CBS News' The Early Show.

The defense may begin its closing on Tuesday. The jury could get the case as early as Wednesday.

The judge's ruling allows Stewart's lawyer, Robert Morvillo, to streamline the issues in the case for the jury, said Timothy Hoeffner, a Philadelphia white-collar crime lawyer.

"It permits Morvillo to focus his closing statement on the core issues in the case — did Martha Stewart lie to the government, and did she obstruct justice?" he said.

Those charges spring from Stewart's sale of 3,928 shares of ImClone Systems stock on Dec. 27, 2001 — just before its value declined sharply on a negative government report on an ImClone cancer drug.

The government says Stewart and Bacanovic lied to cover up the true reason for the sale: Bacanovic sent word to Stewart that ImClone CEO Sam Waksal was trying to sell his own shares.

Cedarbaum found there was not sufficient evidence that Stewart showed an intent to deceive investors when she issued three statements explaining the ImClone sale in June 2002. If Stewart had been convicted of that charge, she could have faced 10 years in prison, double the potential terms of any other count in the case.

But four counts remain against Stewart and five remain against Bacanovic, all related to what prosecutors say was a cover-up. Legal analysts say an acquittal for either is far from certain.

Prosecutors were expected to highlight three critical pieces of testimony against Stewart:

— Faneuil, Bacanovic's former assistant at Merrill Lynch & Co., testified that Bacanovic ordered him to alert Stewart that the Waksal family was selling its shares of ImClone.

While Stewart is not charged with insider trading, among the charges is that Stewart lied when she told the government she had no memory of being told about the Waksal sales.

— Ann Armstrong, a longtime Stewart assistant, testified Stewart personally altered a computer log of a Dec. 27, 2001, message from Bacanovic — just days before she went in for her first interview with investigators.

— And Mariana Pasternak, who has known Stewart for more than 20 years, said Stewart confided to her on a Mexican vacation that she knew in advance about the Waksal sales.

Pasternak testified Stewart told her: "Isn't it nice to have brokers who tell you those things?" But she admitted under cross-examination that the remark could have been something she thought, rather than something Stewart said.