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US dealt setback in trial of Stewart

Prosecutors can't use voice mail left by broker

NEW YORK -- A federal judge yesterday further limited the government's ability to prove Martha Stewart and her stockbroker conspired to lie about Stewart's sale of ImClone Systems stock.

The judge blocked prosecutors from putting into evidence a voice mail that broker Peter Bacanovic left for Stewart on Feb. 4, 2002, the day she was first interviewed by the government in the ImClone investigation.

"The fact that he tried to contact her really isn't evidence of anything, other than that they talked to each other sometimes," US District Judge Miriam Goldman Cedarbaum said.

The essence of the conspiracy charge is that Stewart and Bacanovic worked together to hatch a cover story for why Stewart sold 3,928 shares of ImClone stock on Dec. 27, 2001.

The government claims Bacanovic ordered his assistant to tip Stewart that ImClone founder Samuel Waksal was trying to sell his shares. Stewart and the broker say they had arranged to sell ImClone when it fell below $60 a share.

Prosecutor Karen Patton Seymour argued the voice mail placed just after 7 a.m. on Feb. 4, 2002 is evidence of Bacanovic's state of mind in the alleged conspiracy. Stewart gave the first of two interviews to investigators later that day. The judge also limited what prosecutors can argue about two other calls between Stewart and Bacanovic on Jan. 25, 2002, the day Stewart was informed that federal prosecutors wanted to speak with her.

On Friday, the judge barred prosecutors from putting into evidence a record of a phone call from Bacanovic to Stewart on Jan. 31, 2002, just after, according to testimony, Stewart changed a message log of a Dec. 27 Bacanovic call. Stewart immediately told her assistant to change the message back to its original wording, testimony showed.

The new setbacks to the government also came on the heels of the judge's ruling on Friday that blocks prosecutors from calling expert witnesses as they try to show Stewart committed securities fraud. That charge accuses the domesticity maven of propping up the stock price of her own firm, Martha Stewart Living Omnimedia, by falsely claiming she was innocent and cooperating with investigators in the ImClone probe.

The ruling Friday means prosecutors will not be allowed to call stock analysts as witnesses to show what effect Stewart's statements had on the stock price. They may still be allowed to call individual investors.

Securities fraud, carrying up to a 10-year prison term, is the most serious of the five counts against Stewart. The other four -- conspiracy, obstruction of justice and two counts of making false statements -- carry five years apiece.

The arguments on the phone calls came outside the jury's presence yesterday, the start of the fourth week of Stewart's and Bacanovic's trial in Manhattan federal court.

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