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Opening Arguments Begin in Martha Stewart Fraud Trial

Opening arguments in the securities fraud trial of U.S. media and home products magnate Martha Stewart began Tuesday at a federal courthouse in lower Manhattan.

Prosecutors argued that Martha Stewart lied about a suspicious stock sale of 4,000 shares of biotech-drug maker ImClone Systems, just one day before an announcement by the U.S. Food and Drug Administration that caused ImClone share prices to fall. The FDA declared it would not review the company's application for approval of a potentially promising cancer drug.

Defense attorney Robert Morvillo said the case against his celebrity client was not based on any direct evidence. He maintains Ms. Stewart is being prosecuted because of her fame - a point presiding Judge Miriam Goldman Cedarbaum would not allow him to make before the eight-woman, four-man jury.

Ms. Stuart became a household name in the United States for having turned her flair for home decorating into a multi-million dollar business empire with products bearing her name that range from furniture and house paint to magazines and television programs.

Baruch College law professor Seth Lipner studies financial fraud. He says Martha Stewart's celebrity status is irrelevant to the government case against her.

"The allegations are first, she spoke untrue statements to the government in their investigation of Mr. Waksal and the ImClone situation and with regard to her own situation," he said. "And second, that she doctored or altered some evidence to make it appear that she had a conversation when in fact she had not. They prosecute people of all stripes when they see that happen."

Federal authorities believe the 61-year-old chief of the gracious-living business, 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 now serving a seven-year jail sentence.

Ms. Stewart says she had previously arranged with her broker, Peter Bacanovic, to sell the stock when it dropped to a certain price. Mr. Bacanovic is also being prosecuted for allegedly lying about the stock-trading scandal.

Baruch College professor Lipner says the turning point of the prosecution's case will be in the thousands of details surrounding the stock transaction.

"Prosecutions of this kind tend to turn on minutiae and individual interpretations of documents," he said. "And it would not surprise me if the end of this were a hung jury. But I expect one of the most important things to be the prosecution's examinations of Mr. Bacanovic's assistant."

Mr. Bacanovic's former assistant at Merrill Lynch, David Faneuil, is a star witness for the government. He pleaded guilty to lying to investigators and is cooperating with prosecutors.

A horde of media has been camped out in front of the Manhattan courthouse since jury selection began, hoping to catch a glimpse of Martha Stewart.

Her trial is expected to last about a month.