NEW YORK - Martha Stewart lied to investigators and committed "serious federal crimes" by selling off nearly 4,000 shares of stock based on a tip no one else had, a federal prosecutor charged Tuesday.
As opening statements got under way in federal court, Assistant U.S. Attorney Karen Patton Seymour told jurors that Stewart had lied to federal agents, and "multiplied that lie by feeding it to investors in her own company."
"She was told a secret that no other investor had," Seymour said.
One count accused Stewart of deliberately trying to prop up the stock of her domestic lifestyle company, Martha Stewart Living Omnimedia, by saying in 2002 that she had done nothing wrong and was cooperating with investigators.
"She tried to mislead investors ... to lift that dark cloud hanging over her reputation," Seymour said. "Martha Stewart was worried this would be bad for her reputation."
Among those in the first-floor courtroom for the start of the trial were Stewart's daughter, Alexis, and her mother, Martha Kostyra.
Stewart is accused of working with her stockbroker to concoct a story about why she sold 3,928 shares of ImClone Systems on Dec. 27, 2001 - just before stock in the fledgling biotechnology company plunged when the government refused to review Erbitux, an ImClone cancer drug and the only drug in the company's pipeline.
The government claims Stewart was tipped that ImClone founder Sam Waksal was trying to dump his own shares. Stewart and the broker, Peter Bacanovic, who is Stewart's co-defendant, say they had a pre-existing agreement to sell the stock when it fell to $60 per share.
On Monday, U.S. District Judge Miriam Goldman Cedarbaum told jurors it was critical that they decide the case only on the evidence - and ignore the onslaught of media coverage surrounding Stewart's every move.
"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."
The judge had complained about heavy pretrial publicity and had barred reporters from watching jury selection.
The jury, seated Monday, includes eight women and four men from diverse backgrounds, including a reverend, a translator and a pharmacist familiar with the style guru's recipes.
Many of them told Cedarbaum they had read or heard about the case already. But they described only vague knowledge of the case, and assured the judge they could be impartial.
One of the jurors is a pharmacist originally from Uganda who said she had seen Stewart frequently "in the TV sometimes - her cooking recipes and stuff." But she said she had not paid close attention.
One juror is a paralegal who translates Italian and owns stock in Merrill Lynch & Co. - the brokerage where Bacanovic managed Stewart's account, including the ImClone shares.
Another is a reverend who told the judge she counsels married couples.
Even before opening statements began, the judge dealt Stewart a setback. Cedarbaum said Stewart's defense could not argue that she is being prosecuted merely for claiming she was innocent.
The government was expected to call a Merrill Lynch compliance officer as one of its first witnesses, to talk about the company's manual for brokers - a manual prohibiting brokers from discussing one client's affairs with another.
Prosecutors say Bacanovic sent word to Stewart through an assistant that Waksal was trying to unload his ImClone shares.
Waksal, who pleaded guilty to securities fraud charges, is serving a prison sentence of more than seven years after tipping his daughter to sell her shares of ImClone. The FDA, meanwhile, is expected to approve ImClone's Erbitux sometime in the first quarter.
On Monday, a federal appeals court heard arguments on whether Cedarbaum went too far in closing jury selection. The judge did release transcripts.
The judge said she closed the process because she wanted potential jurors to be as candid as possible. But 17 media organizations, including The Associated Press, say the judge had no right to do so. Such proceedings are normally held in open court.
While any appeals court ruling would come too late to affect the Stewart case, media lawyers say they hope to clear up the law for similar cases in the future.