A judge refused to dismiss a securities fraud charge against Martha Stewart on First Amendment grounds Tuesday, saying the government was entitled to prosecute her for statements she made.
Eight weeks before the domesticity maven goes to trial, U.S. District Judge Miriam Goldman Cedarbaum read the ruling from the bench at the start of a hearing. The government had insisted all five charges should be preserved.
Cedarbaum said she could not dismiss the securities fraud charge that accused Stewart of making false statements to protect the value of her company’s stock.
“Such false factual statements are not protected by the First Amendment,” Cedarbaum said.
Stewart, 62, is accused of conspiracy, obstructing justice, securities fraud and two counts of lying to investigators in connection with her Dec. 27, 2001, sale of about 4,000 shares of ImClone Systems stock. The judge also refused to throw out the obstruction charge.
The government contends she was tipped that the family of ImClone founder Sam Waksal was trying to sell its shares. A negative government report the next day sent ImClone shares tumbling.
Stewart claims she had a standing order with her stockbroker, Peter Bacanovic, to sell the stock when it fell to $60. Bacanovic was indicted with Stewart, also pleaded innocent and is to be tried with her Jan. 12.
Cedarbaum ruled after receiving written arguments over the past several weeks on whether the securities fraud and obstruction of justice charges should be dismissed.
The judge said the defense had challenged the obstruction of justice charge prematurely. She said it would be appropriate to do so only after the government had presented its case to a jury.
Stewart’s defense team claims the securities fraud count, in which the government accuses her of deceiving shareholders in her own company by saying she was innocent and was cooperating with investigators, is unconstitutional.
The lawyers also say the obstruction count should be dismissed because none of Stewart’s statements to investigators could have hindered the federal investigation into her stock sale.
The government says both charges are proper. And prosecutors have defended the securities fraud count by saying Stewart engaged in a pattern of lying to her own shareholders while the government was investigating the ImClone sale.
“Stewart did not merely express a belief that she would be cleared of accusations of wrongdoing,” prosecutors wrote. “Instead, Stewart gave a forceful, detailed and false explanation for her sale of ImClone.”
The charges against Stewart carry a potential prison term of 30 years, although she would get far less if convicted under federal sentencing guidelines.
Stewart told ABC News in an interview aired this month that she is scared of prison, but “I don’t think I will be going to prison, though.”