Federal prosecutors charged a U.S. Secret Service analyst with perjury on Friday for allegedly lying on the stand during the criminal trial of Martha Stewart -- an embarrassment to the government that her defense said warranted a new trial.
Larry F. Stewart, a laboratory director and chief document examiner, who is not related to the multimillionaire businesswoman, lied when he said he was personally involved in testing ink on a worksheet that was a key piece of evidence in the trial, prosecutors said.
Broker Peter E. Bacanovic told investigators that the worksheet documented Martha Stewart's plan to sell her ImClone Systems Inc. stock when the price fell to $60. Prosecutors based their conspiracy case against Stewart on the assertion that no such agreement existed and that she and Bacanovic concocted the $60 story to avoid insider-trading charges.
But, according to the government, the evidence itself is not in question, only who was directly doing the tests.
"We are quite confident that the false testimony will have no impact on the convictions of Martha Stewart and Peter Bacanovic for both factual and legal reasons," U.S. Attorney David N. Kelley said at a news conference announcing the charges. The prosecutors did not say how they uncovered information that led to their conclusion that Larry Stewart had lied.
Larry Stewart's attorney, Lawrence S. Feld, declined to comment on the charges, saying neither he nor his client had had time to fully examine the case. Feld said Stewart was released on a personal recognizance bond and was returning home to Bethesda. Stewart faces a maximum five-year sentence and $250,000 fine on each of the two perjury charges.
Lawyers for Martha Stewart and Bacanovic quickly seized on the perjury allegations, saying they should be enough to have the guilty verdicts tossed out when viewed in conjunction with juror Chappell Hartridge's alleged failure to disclose previous brushes with the law prior to the trial.
"The arrest of one of the government's key witnesses for perjury clearly demonstrates that the trial of Martha Stewart was fatally flawed and unfair," Stewart's attorneys Robert G. Morvillo and John J. Tigue said in a prepared statement.
The lawyers added, "This is an indication that not one but at least two significant perjuries took place during the course of the trial process." Her attorneys said if people believe Stewart's right to a fair trial "was not prejudiced, they are extremely naive."
Richard M. Strassberg, Bacanovic's attorney, said, "We believe that the perjury of a key government witness undermines any integrity there was in the jury's verdict and will require a new trial -- and we will pursue that."
Some white-collar crime experts agreed that the new development made a new trial possible.
Former federal prosecutor David Schertler called the perjury charges extraordinary and said they could result in the March 5 guilty verdicts against Bacanovic and Martha Stewart being overturned. "This undermines the credibility of a key expert witness's testimony and creates a very compelling argument for a new trial," Schertler said. "It seems hard to imagine that a new trial would not be granted under these circumstances."
Government prosecutors disagreed.
They said they had no reason to doubt Larry Stewart's central conclusion -- that the notation "@60" next to the word ImClone had been made in different ink than other markings on the worksheet. They said the analyst who performed the tests confirmed the accuracy of the results. Prosecutors also said jurors acquitted Bacanovic on a charge of making false documents because they could not determine whether the worksheet including the $60 notation was legitimate or had been fraudulently altered.
Former federal prosecutor David Gourevitch said that because jurors acquitted Bacanovic on the false document charge, they probably did not consider the worksheet during deliberations on the conspiracy charge. But he said the perjury charges were still a major setback for the government that would cast doubt on the guilty verdicts.
"It's very serious," Gourevitch said. "It seems to lend credibility to the argument that things clearly went awry" during the trial. "And one wonders why it took such a long time for this to be recognized. People at the lab who did the testing must have known almost immediately that the testimony was inaccurate."
Prosecutors say Larry Stewart gave false testimony on Feb. 19 and Feb. 25 when he said that he worked directly on analysis of the worksheet in August of 2002 and that he was aware of a book proposal on the topic of ink analysis.
Kelley, the Manhattan U.S attorney, said his office first learned of problems with the testimony on the afternoon of May 14 and immediately began an investigation.
Kelley declined to say why it took three months for the alleged perjury to come to light. He said only that the delay "comes down to a matter of suspicion and confirmation." A Secret Service official present at the news conference declined to answer questions.
Ultimately, a decision about how the perjury allegations will affect Martha Stewart and Bacanovic will be up to U.S. District Judge Miriam Goldman Cedarbaum, who presided over the trial. Martha Stewart and Bacanovic are scheduled to be sentenced June 17, though legal experts said that date is likely to change.
If Larry Stewart is found to have offered perjured testimony, lawyers said, Cedarbaum's decision regarding a new trial will rest on two factors: whether the testimony was material to the verdict and the extent to which prosecutors knew or should have known about the perjury. On the second point, several lawyers said prosecutors should have discovered during the vetting process the extent to which Larry Stewart was involved in examining the worksheet.
Shares of Martha Stewart Living Omnimedia Inc. rose 75 cents, or nearly 9 percent, on Friday to close at $9.30. The stock climbed as high as $10.49 earlier in the day on news of the perjury charges.