Martha Stewart Dealt Blow In Court

A judge said Monday she saw no indication of a breach of grand jury secrecy in the Martha Stewart case, rejecting defense demands that the government investigate the source of pre-indictment leaks.

Stewart's lawyers had asked U.S. District Judge Miriam Goldman Cedarbaum to order federal prosecutors to investigate whether a government employee had released information that the grand jury would not charge insider trading.

The lawyers said the leaks violated federal grand jury secrecy rules and might have influenced grand jurors before they handed up the indictment against Stewart and her former stockbroker, Peter Bacanovic.

Stewart lawyer Robert Morvillo had suggested that the FBI, the Securities and Exchange Commission and the Justice Department might be possible sources of the leaks.

But the judge wrote: "I am not persuaded that it is likely that there was a breach of grand jury secrecy."

Cedarbaum said she found it difficult to understand how lawyers for the home decorating maven believed their client might have been prejudiced if someone had leaked the fact that the indictment would not include a charge of insider trading.

A message left with Morvillo for comment was not immediately returned.

Stewart has pleaded innocent to charges of obstruction of justice, conspiracy, securities fraud and making false statements to investigators.

Prosecutors say that Bacanovic tipped off Stewart that the family of ImClone founder Sam Waksal was trying to sell its stock in the biotechnology company. Bacanovic, also indicted, has pleaded innocent.

News reports based on anonymous sources before the June 4 indictment of Stewart accurately predicted the charges against her.

Stewart, 61, is accused of lying about why she sold nearly 4,000 shares of ImClone Systems stock. She sold it Dec. 27, 2001, just before a Food and Drug Administration decision about an ImClone cancer drug sent the stock plummeting.

The trial for both Stewart and Bacanovic is scheduled to begin Jan. 12.

Waksal pleaded guilty in the scandal last fall and has begun serving a prison sentence of more than seven years.

By Larry Neumeister