04:04 PM EST on Monday, March 1, 2004

By ERIN McCLAM
Associated Press

NEW YORK — Telling careful lies but making careless mistakes, Martha Stewart and her stockbroker were bent on keeping investigators from the truth about why the homemaking icon sold stock, a federal prosecutor said Monday.

AP Photo/Louis Lanzano Martha Stewart enters federal court Monday in New York.

In a methodical three-hour closing argument, prosecutor Michael Schachter told jurors that Stewart and broker Peter Bacanovic believed they would never be caught in their deception.

"But Martha Stewart and Peter Bacanovic were wrong," Schachter said. "They left behind a trail of evidence exposing the truth about Martha Stewart's sale and exposing the lies they would tell."

Stewart and Bacanovic face federal charges related to the government's contention that they lied about why Stewart sold about $225,000 worth of ImClone Systems stock on Dec. 27, 2001.

Prosecutors say Bacanovic sent word to Stewart that ImClone CEO Sam Waksal and his family were frantically dumping their own shares. The stock fell sharply after the government announced the next day it was declining to review an ImClone cancer drug.

Schachter spent much of his argument trying to dismantle the centerpiece of the pair's defense - that they had struck a deal before Dec. 27 to sell Stewart's shares when ImClone stock dropped below $60.

The prosecutor listed seven reasons jurors would know the $60 agreement is a lie, calling it "phony," "silly" and "simply an after-the-fact cover story."

Among the reasons: The pair have no record of having made the plan, other than a worksheet produced by Bacanovic with the notation "(at)60" next to ImClone stock - in a different ink from other marks on the page.

Schachter also listed inconsistencies - mistakes, he called them - in the stories Stewart and Bacanovic told federal investigators looking into the ImClone trade in early 2002.

For example, Bacanovic claimed they had the $60 conversation on Dec. 20, 2001. But Stewart placed it in late October or early November.

And Schachter took jurors back to Jan. 31, 2002, four days before Stewart was first questioned about ImClone, when she allegedly tampered with a log of a message Bacanovic had left her the day she sold.

Stewart quickly ordered her assistant to restore the message to its original wording, according to the assistant's testimony. But the fact that she altered it at all is evidence she was worried about why she had sold the stock, Schachter said.

"This event is devastating evidence that she committed the crimes that she's charged with," he said.

A lawyer for Bacanovic was to present his closing argument later Monday, and Stewart's lead lawyer was to make his case Tuesday morning. The jury could begin deliberating as early as Wednesday.

Last week, U.S. District Judge Miriam Goldman Cedarbaum dismissed a count of securities fraud, which accused Stewart of misleading investors in her own media company when she claimed publicly that she sold ImClone because of the $60 deal.

The judge said the government had failed to provide enough evidence of criminal intent by Stewart, who prosecutors said was trying at the time to protect her enormous wealth in Martha Stewart Living Omnimedia.

The remaining counts against Stewart carry up to 20 years in prison, although federal sentencing guidelines could mean a sentence of just a year or so if she is convicted on all counts.

The charges against Bacanovic carry 25 years, but the guidelines would similarly reduce his sentence.

The judge told jurors Monday not to speculate about why the securities fraud count was no longer part of the case, saying only that it was for "reasons of law which are not your concern."

And the dismissal left jurors to grapple with one central question - whether Stewart and the broker lied to the government about the stock sale.

Schachter also focused heavily on testimony early in the trial from Douglas Faneuil, the former Merrill Lynch & Co. assistant who said he passed the tip about the Waksals from Bacanovic to Stewart.

Defense lawyers had promised jurors they would see that Faneuil was "fixated" with Stewart and perhaps decided on his own to tip her, but Schachter said no such evidence had emerged at trial.

"Douglas Faneuil's demeanor on that witness stand showed that he was doing his level best to give you the truth," Schachter said.

Stewart took notes during the argument and, as she has done throughout the trial, maintained a grim poker face. Actor Brian Dennehy showed up in court to support her, the latest in a string of pro-Stewart celebrities in attendance.

On Feb. 23, Bill Cosby sat next to Stewart's daughter in the courtroom. Asked by reporters why he showed up, Cosby said: "I'm here for a friend."

Three weeks earlier, Rosie O'Donnell appeared at the trial, sitting in the front row and jokingly offering a prosecutor a bag of peanut M&Ms as a bribe to drop the case.

Copyright 2004 Associated Press. All rights reserved.