Martha Stewart ditched shares after secret tip-off then lied, court is told

Martha Stewart, the home-making diva on trial for securities fraud and obstruction of justice, committed "serious federal crimes" by taking advantage of a private tip-off to dump shares she held in a bio-tech company then publicly insisting she had done nothing wrong, prosecutors said yesterday.

At the start of her trial in a Manhattan yesterday, Ms Stewart sat mostly blank-faced as prosecutors laid out the government's case against her in opening statements. When it is all over, probably in about a month, Americans will finally know whether the personality who for years taught them how to set the perfect dinner tables and nurture their herb gardens will have to trade her luxury homes for federal prison.

Karen Patton Seymour, the assistant US attorney, focused on the events that triggered Ms Stewart to sell the 4,000 shares she held in ImClone just after Christmas 2001, only one day before the company announced bad news about a forthcoming cancer drug that sent its stock plummeting. The government believes that Ms Stewart was warned of the impending development.

"She was told a secret no other investor had," Ms Patton Seymour said in Manhattan's federal courthouse. She added that the star then lied to investigators about her actions and "multiplied that lie by feeding it to investors in her own company".

Ms Stewart, 62, in theory faces up to 30 years in prison if convicted on all counts of obstruction of justice, lying to investigators and falsifying documents. Federal sentencing guidelines make it likely that she would face a much shorter sentence, if found guilty.

On trial with her is Peter Bacanovic, who was her broker at the Merrill Lynch brokerage house. Prosecutors say it was his office that gave the crucial tip-off to Ms Stewart, notably informing her that the head of ImClone, Sam Waksal, who also used Mr Bacanovic as his broker, was dumping his shares.

The government's star witness in the case is likely to be Doug Faneuil, who was an assistant to Mr Bacanovic at the time. Under questioning in 2002, he at first corroborated the version of events told by the defendants, but later changed his story saying their version was not accurate.

The case has been bedevilled by concerns that the fame of Ms Stewart will make a fair outcome impossible. Judge Miriam Cedarbaum took the unusual step of barring the media from the jury selection process, which ended on Monday. Afterwards, she told the jurors, eight women and four men, to do everything possible to avoid all coverage of what some observers are calling the white-collar version of the OJ Simpson trial.

"If you see a headline about the case, turn the page. Look at another story," the judge said after jurors took an oath of service. "If you hear something about the case, change the channel."

Ms Stewart, who has homes in Connecticut and in the Hamptons on Long Island, arrived at the courthouse yesterday in an olive trouser suit, accompanied by her daughter, Alexis, and her Polish-born mother, Martha Kostrya. She told reporters outside she was feeling "great" about her prospects but said no more.

Inside, the courtroom was packed with some members of the public and press confined to a second overflow room connected to the proceedings by closed-circuit television.

In their opening statements, lawyers for Mr Bacanovic said that the sale of Ms Stewart's stocks was simply a matter of "cleaning house" and had nothing to do with the impending bad news for ImClone, an announcement that its new drug would not be getting necessary approval from the government.

The defence said that Mr Bacanovic and Ms Stewart had an agreement that she should sell her shares in ImClone at the moment they fell below $60, which they did on that day. Mr Faneuil, who was expected to be among the first prosecution witnesses, is likely to contradict that assertion.

Prosecutors said Ms Stewart sought to cover up the real reasons for her selling the stock and tried to pretend that she was fully co-operating with investigators to avert any damage being done to the stock of her own company, Martha Stewart Living Omnimedia. '"She tried to mislead investors ... to lift that dark cloud hanging over her reputation,'" Ms Patton Seymour said. "Martha Stewart was worried this would be bad for her reputation."

Legal experts said the composition of the jury, heavily weighted with women, appeared to bode well for Ms Stewart. Mark Mogil, a Long Island jury consultant and former judge, suggested she had "much better than even chance" of being acquitted.

Many of the jurors admitted they were aware of the case but had only vaguely followed it in the media. Waksal, who pleaded guilty to securities fraud charges, is serving a prison sentence of more than seven years after telling his daughter to sell her shares of ImClone. Ironically, the government is expected to approve the drug, called Erbitux, after first rejecting it, in the first quarter of this year.

Ms Stewart was once a stockbroker, but changed tack after launching a small dinner-party catering business in Connecticut. Over the years, that ballooned into a housekeeping empire and the foundation of her Martha Stewart Living Omnimedia.

She has published books and magazines - that until recently invariably had her image on the front cover - and has held numerous television contracts.