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Updated Feb. 17, 2004, 11:26 a.m. ET

Stewart judge forbids prosecution from speculating on phone conversation

NEW YORK (AP) — A federal judge on Tuesday further limited the government's effort to prove Martha Stewart and her stockbroker conspired to lie about Stewart's sale of ImClone Systems stock.

The judge said she may allow into evidence records that show Stewart and broker Peter Bacanovic talked by telephone in early 2002 — but would not allow prosecutors to speculate on what they talked about.

"You may not argue that, because there was a phone conversation on X day, the conversation must have been about X," said U.S. District Judge Miriam Goldman Cedarbaum. Last week, she told prosecutors they couldn't offer testimony about some of Stewart's public comments.

The judge also ordered prosecutors to modify a chart they hoped to use to summarize ImClone-related phone calls that took place on Dec. 27, 2001, the day Stewart sold her shares.

The judge ordered prosecutors to remove from the chart a minute-by-minute graph of ImClone's stock price, which was steadily declining during the day.

The judge said tying the stock price to the phone calls was a matter for the government's closing argument, not for evidence.

Stewart and Bacanovic are accused of lying to investigators about why Stewart sold 3,928 shares of ImClone Systems stock on Dec. 27, 2001, just before it plunged on a negative government review of an experimental ImClone cancer drug.

The government claims Bacanovic sent word to Stewart that ImClone CEO Sam Waksal was trying to dump his shares. Stewart and Bacanovic claim they had a deal to sell ImClone when it fell below $60 per share.

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 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, the assistant testified.

The judge also has told prosecutors they will not be able to call expert witnesses such as stock analysts to support the securities fraud charge, which accuses Stewart of propping up the price of her own company, Martha Stewart Living Omnimedia, by proclaiming her innocence in the ImClone probe.

 


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