Martha Stewart's E-Mail Off Limits

A federal judge blocked prosecutors from using an e-mail Martha Stewart wrote to her lawyer last year as evidence at her upcoming trial.

U.S. District Court Judge Miriam Goldman Cedarbaum ruled Monday that the domestic style maven did not waive the e-mail's protected status when she forwarded it to her daughter, Alexis, a day after sending it to her attorney.

The e-mail, dated June 23, 2002, contains Stewart's account of why she sold ImClone Systems Inc. stock in late 2001. The sale was under investigation in 2002, and Stewart was later indicted on five criminal counts.

The government says Stewart sold ImClone shares on Dec. 27, 2001, because she was tipped that the family of ImClone founder Sam Waksal, a Stewart friend, was trying to sell its shares.

The stock plummeted the next day on a negative government report about an ImClone drug. Waksal later pleaded guilty to selling on advance word of the news, and is serving a seven-year prison term.

Stewart's lawyers say she unloaded ImClone because she had a standing agreement with her stockbroker to sell if the stock price hit $60.

A federal prosecutor came across the e-mail earlier this year in preparation for Stewart's trial, scheduled for Jan. 12, and asked the judge to clarify whether it could be used as evidence.

Cedarbaum ruled that the e-mail deserved the legal protection of attorney work product — a designation that means the government cannot use it as evidence at her trial.

The judge said the e-mail does not disclose Stewart's legal strategy, but she rejected the government's argument that the e-mail "would have taken the same form if created for a nonlitigation purpose."

In an affidavit, Stewart called her daughter "the closest person in the world to me."

"She is a valued confidante and counselor to me," Stewart said. "In sharing the e-mail with her, I knew that she would keep its content strictly confidential."

Stewart, in papers filed in Manhattan federal court earlier this month, asked the judge to dismiss charges of securities fraud and obstruction of justice — two of the five counts against the former TV show host who founded Martha Stewart Living Omnimedia.

Stewart and stockbroker Peter Bacanovic, who was indicted with her June 4, have pleaded innocent.

The securities fraud count alleges Stewart deliberately deceived shareholders in her company, Martha Stewart Living Omnimedia, when she declared in 2002 that she was innocent and was cooperating with investigators.

Her lawyers claim the count should be dismissed because it violates her constitutional rights and the American legal principle that defendants are innocent until proven guilty.

"This charge is unprecedented in the seventy-year history of the federal securities laws. It violates the First Amendment, the Due Process Clause, and the securities statute itself," the lawyers said.

The lawyers said in court papers the obstruction count should be dismissed because none of Stewart's statements to investigators could have hindered an investigation by regulators into her stock sale.

Stewart's lawyers also object to a section of the indictment that the government labeled "background" but that the lawyers contend is really inflammatory language that could mislead a jury.

"It is inflammatory, irrelevant, and insinuates that Martha Stewart committed insider trading when there is no insider-trading charge in the indictment," the lawyers said.

While securities regulators filed a civil suit charging Stewart with insider trading, the government did not include the charge in its indictment. The charge is much more difficult to prove in a criminal case.

The five federal counts in the indictment carry a total sentence of 30 years in prison and fines of $2 million. The two counts Stewart wants dismissed account for 15 years and $1.25 million. Under federal sentencing guidelines, Stewart would likely face far less time in prison if convicted.

The government has until Nov. 5 to respond to the filing.