updated 2/29/2004 6:49:07 PM ET 2004-02-29T23:49:07

Their most serious charge cast aside by a federal judge, prosecutors will zero in Monday on their accusation that Martha Stewart and her stockbroker cooked up a cover story for a 2001 stock sale.

The government will present its closing argument in the five-week trial, hoping to persuade a jury of eight men and four women to convict the domestic-style maven of conspiracy, obstruction of justice and lying to investigators.

The charges spring from Stewart’s sale of 3,928 shares of ImClone Systems stock on Dec. 27, 2001 — just before it declined sharply because of a negative government report on a company cancer drug.

The government says Stewart and broker Peter Bacanovic lied to cover up the true reason for the sale: Bacanovic had sent word to Stewart that ImClone CEO Sam Waksal was trying to sell his own shares.

But prosecutors have been stripped of the most serious count they brought against Stewart — a charge she lied to investors in her own media empire, Martha Stewart Living Omnimedia, by saying her ImClone sale was proper.

U.S. District Judge Miriam Goldman Cedarbaum found there was not sufficient evidence that Stewart showed an intent to deceive investors when she issued three statements explaining the ImClone sale in June 2002.

When Stewart lawyer Robert Morvillo makes his closing argument after the government’s, the judge’s ruling will allow him to streamline the remaining allegations for the jury, said Timothy Hoeffner, a Philadelphia attorney specializing in white-collar crime.

“It permits Morvillo to focus his closing statement on the core issues in the case — did Martha Stewart lie to the government and did she obstruct justice?” he said.

The securities-fraud count carried a potential 10-year prison term, double the potential terms of any other count in the case.

But the ruling leaves four counts against Stewart and five against Bacanovic, all somehow related to what prosecutors say was a cover-up. And legal analysts say an acquittal for either is far from certain.

The judge has reserved Monday and Tuesday for closing arguments. Prosecutors will go first, but it is not clear whether lawyers for Bacanovic or Stewart will present first on the defense side. In either case, the judge has said she expects the jury to begin deliberations Wednesday.

Prosecutors are likely to highlight three critical pieces of testimony against Stewart:

  • Douglas Faneuil, Bacanovic’s former assistant at Merrill Lynch & Co., testified Bacanovic ordered him to alert Stewart that the Waksal family was selling its shares of ImClone. While Stewart is not charged with insider trading, among the charges is that Stewart lied when she told the government she had no memory of being told about the Waksal sales.
  • Ann Armstrong, a longtime assistant, testified Stewart personally altered a computer log of a Dec. 27, 2001, message from Bacanovic — just days before she went in for her first interview with investigators.
  • Mariana Pasternak, who has known Stewart for more than 20 years, said Stewart confided to her during a Mexican vacation that she knew in advance about the Waksal sales. Pasternak testified Stewart told her: “Isn’t it nice to have brokers who tell you those things?” She admitted under cross-examination that the remark could have been something she thought, rather than something Stewart said.

© 2012 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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