Judge tosses Stewart 'lying' charge

NEW YORK - A federal judge Friday tossed out the most serious charge against Martha Stewart, a count alleging she deceived investors in her company when she publicly declared her innocence in an insider-trading scandal.

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.

The securities fraud charge accused Stewart of trying to prop up the stock price of Martha Stewart Living Omnimedia when she claimed in 2002 that she had sold her ImClone Systems shares because of a deal with her broker to dump the stock when it fell to $60. Prosecutors say that was a lie.

Many legal experts said they believed the charge was unprecedented, and Stewart's most ardent supporters cried that she was being prosecuted for simply saying she was innocent.

Legal analysts said the ruling was cause for celebration for Stewart's defense team - but cautioned it was by no means a signal that she will be cleared of all charges by the jury.

"There's no question the government put forth evidence that at least supports their version of events," said Jack Sylvia, a veteran Boston securities lawyer. "And there is a very minimalist case the defense put on."

Stewart still faces four criminal counts at the trial - 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 sentence of five years and a $250,000 fine, though a conviction would carry a far lighter penalty under federal sentencing guidelines.

"I'm pleased that the judge has dismissed the most serious of the charges against me, concluding that there is no evidence to support it," Stewart said in a message posted on her personal Web site.

The charge had been criticized by Stewart's lawyers as a violation of the First Amendment, and the judge herself has referred to the charge as "novel" and "problematic."

The government says Stewart sold her ImClone stock because Bacanovic sent word to her that her friend, ImClone Systems founder Sam Waksal, was frantically trying to sell his ImClone shares.

Cedarbaum issued her decision just as lawyers began meeting with her behind closed doors to discuss the instructions the judge will give jurors when they begin deliberating.

The decision put a charge into Martha Stewart Living Omnimedia stock, sending its shares up $1.70, or nearly 13 percent, to $14.80 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 comment, and a spokesman for the U.S. attorney's office did not immediately return a call for comment.

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.