Judge's ruling provides boost for Martha Stewart

In a break for Ms Martha Stewart, a judge ruled yesterday that prosecutors cannot call expert witnesses to testify that the lifestyle trendsetter tricked investors into buying stock in her company by making false statements.

US District Judge Miriam Goldman Cedarbaum's ruling deals a blow to prosecutors trying to show that Ms Stewart committed securities fraud when she publicly denied any involvement in an insider-trading scheme.

Taking a novel approach, prosecutors charge that Ms Stewart's statements about her role in selling ImClone Systems stock on December 27th, 2001, were made to protect the financial health of her own company, Martha Stewart Living Omnimedia Inc.

Prosecutors say Ms Stewart committed securities fraud because investors who bought Martha Stewart Living shares trusted that the company's founder and public face was telling the truth when she said she had no insider knowledge when she sold ImClone.

Under the ruling, prosecutors cannot call expert witnesses to tell jurors that investors were duped into buying Martha Stewart Living stock by her public statements of innocence.

Judge Cedarbaum said she had "precluded any expert testimony on whether a reasonable investor would have considered the statements important in making an investment decision".

Ms Stewart and her former broker, Mr Peter Bacanovic, are accused of lying to cover-up the reason for her December 2001 sale of ImClone shares. Ms Stewart ordered the trade after receiving a "secret tip" that the biotech company's founder and family were dumping their shares, prosecutors charge.

Judge Cedarbaum's ruling came just before Ms Stewart's lawyers resumed their cross-examination of FBI agent Ms Catherine Farmer, who testified earlier this week that Ms Stewart told investigators she had a pre-existing arrangement with Mr Bacanovic to sell ImClone stock when it fell to around $60 a share.

Ms Farmer's testimony lays the groundwork for false statement charges against Ms Stewart. But Ms Stewart's lawyers sought to show yesterday that the only record of the trendsetter's discussions with investigators are hand-written notes by Ms Farmer.

Mr John Tigue, one of Ms Stewart's lawyers, asked Ms Farmer if "it's possible to miss important things" when taking notes during interviews. "Yes," Ms Farmer conceded. - (Financial Times Service)