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Jury Selection Begins in Trial of Martha Stewart - 2004-01-06

Jury selection began Tuesday in the securities fraud trial of home décor magnate Martha Stewart, amid speculation that prosecutors and the billionaire businesswoman may reach a settlement.

Hundreds of potential jurors filed into the federal courthouse in lower Manhattan to complete questionnaires drawn up by prosecutors and Ms. Stewart's defense lawyers.

New York University law professor Harry First, a specialist on corporate crime, said that it is unlikely the Department of Justice would reach an agreement with Stewart's lawyers. "At this point, my sense would be the Department of Justice would not settle for any plea that would not involve time in jail. This cannot be a slap on the wrist from the Justice Department's point of view," he said.

Ms. Stewart has turned her flair for home decorating into a business empire with products bearing her name that range from furniture and house paint to magazines and television programs.

Ms. Stewart and her former stockbroker, Peter Bacanovic, are accused of lying about a December 2001 sale of 4,000 shares of biotech-drug maker ImClone Systems, just one day before the U.S. Food and Drug Administration announced it would not review the company's application for approval of a promising cancer drug.

Doctors concluded shortly after the FDA rejection that the drug Erbitux worked as well as an earlier, ImClone-sponsored study had shown.

Federal authorities believe the 61-year-old chief of the gracious-living empire, Martha Stewart Omnimedia, sold her ImClone shares because she knew ahead of time of the FDA's decision and that it would make the stock price drop. Authorities say she learned the information through her friendship with ImClone founder Samuel Waksal. He was convicted of insider trading, which is the sharing of non-public information about a stock, and is serving a jail sentence.

Professor First said Ms. Stewart was charged at a time when public outrage over a series of corporate scandals, which included Enron, Worldcom, and HealthSouth, was at an all-time high. "If you step back at a broader level, this is bad behavior, but it is not behavior that is economically as devastating as the corporate accounting scandals. Scandals that have involved companies like Enron or Tyco have cost investors millions of dollars. This did not cost anyone a lot of money," he said.

U.S. attorney James Comey said at the time he announced Ms. Stewart's indictment that she repeatedly lied to federal authorities about the circumstances surrounding the stock sale. Ms. Stewart claims that she had previously arranged with her broker to sell the stock when it dropped to a certain price.

New York University's Professor First said Ms. Stewart's truthfulness is central to the prosecution's case. "More important than her status will be the extent to which she lied. That is, she has not been telling the truth about things, that she tried to evade the original questions about these trades, and what she knew about the stock. The sense of her personal integrity might play and in that sense, her persona might hurt her at that point," he said.

Lawyers on both sides will spend the next two weeks evaluating prospective jurors before the trial begins on January 20.