(NEW YORK, February 27th, 2004, 1 p.m.) -- A federal judge on Friday threw out the most serious charge against Martha Stewart, an accusation that she deceived investors in her media empire by claiming that her sale of ImClone Systems stock had been proper.
The decision by U.S. District Judge Miriam Goldman Cedarbaum came just five days before jurors are expected to begin deciding the case against the celebrity homemaker and her stockbroker.
"I have concluded that no reasonable juror can find beyond a reasonable doubt that the defendant lied for the purpose of influencing the market for the securities of her company," Cedarbaum wrote.
Stewart still faces four criminal counts -- conspiracy, obstruction of justice and two counts of lying to investigators. The judge declined to throw out any of the five counts against broker Peter Bacanovic.
The securities fraud count carried a potential prison sentence of 10 years and a $1 million fine. The remaining four counts against Stewart each carry a prison sentence of five years and a $250,000 fine.
"We're very pleased that Judge Cedarbaum has concluded that there is no evidence to support the most serious charge," Stewart spokeswoman Anna Cordasco said.
The securities fraud charge had been criticized by Stewart's lawyers as an unprecedented violation of the First Amendment, and the judge herself had referred to it as "novel" and "problematic."
It accused Stewart of trying to prop up the stock price of Martha Stewart Living Omnimedia when she claimed in 2002 that she had sold ImClone because of a deal with Bacanovic to dump the stock when it fell to $60. Stewart personally stood to lose $30 million for every dollar her stock price dropped.
The government claims that was a lie, and that Stewart sold instead because Bacanovic sent word to her that her friend, ImClone founder Sam Waksal, was frantically trying to sell his ImClone shares.
Cedarbaum issued her decision just as lawyers in the case began meeting with her behind closed doors to discuss the instructions the judge will give jurors when they begin deliberating next week.
The decision put a charge into Martha Stewart Living Omnimedia stock, sending its shares up 14 percent, or $1.79, to $14.89 in afternoon trading on the New York Stock Exchange.
Stewart herself was in the meeting with lawyers and the judge. Prosecutors, leaving the judge's robing room for lunch, declined to comment, and a spokesman for the U.S. attorney's office did not immediately return a call for comment.
The securities fraud charge focused on three statements in 2002 -- one on June 6 by her lawyer, and two on June 12 and June 18 by Stewart herself.
Each time, the $60 agreement was given as the reason for Stewart's stock sale. Stewart's lawyers said she was just trying to clear her name, but the government contended that she was spreading a lie with deliberate purpose.
The judge conceded that Stewart had a motive -- her heavy investment in her own company -- to deceive investors. But she said the government had not sufficiently shown an intent by Stewart to defraud investors.
"Here, the evidence and inferences the government presents are simply too weak to support a finding beyond a reasonable doubt of criminal intent," the judge wrote in a 23-page ruling.
Closing arguments in the trial are scheduled to begin Monday and last well into Tuesday. The jury is expected to receive its instructions and begin deliberating on Wednesday.
Stewart's lawyers still must convince the jury that she was not lying to investigators when she told them in 2002 that she had no memory of being tipped about Waksal.
The government's star witness in the trial was Douglas Faneuil, the former Merrill Lynch & Co. assistant who claims he gave Stewart the tip about Waksal on orders from Bacanovic, his boss.
Stewart's personal assistant also testified that Stewart ordered her to change a computerized record of a phone message Bacanovic left for her on the day she sold ImClone stock -- then ordered the assistant to change it back.