Allegations that key gov't witness lied could mean a new trial for Martha Stewart.
NEW YORK (CNN/Money) - A government witness against Martha Stewart was charged Friday with lying on the witness stand -- meaning her conviction on conspiracy and obstruction of justice charges could get thrown out.
Larry Stewart, who had testified as an expert witness about the ink on a worksheet maintained by Martha's broker, Peter Bacanovic, was charged with two counts of perjury in a complaint filed in Manhattan federal court.
Prosecutors said the development would not affect the convictions of Martha Stewart and her co-defendant and former stockbroker Peter Bacanovic, but defense attorneys argued otherwise.
The perjury charges were related to testimony in February when Larry Stewart said he was involved in an original examination of the broker's worksheet. He was actually involved in a later examination, court documents said.
Martha Stewart, 62, was convicted in March about lying about a well-timed stock sale and is expected to face time in prison. Bacanovic was convicted on four of five counts against him. He was acquitted of making and using false documents.
Martha Stewart's lawyers said the new development called her conviction into question.
"There is now good reason to believe that both a government witness and a juror perjured themselves, which further undermines the integrity of the prosecution of Martha Stewart and Peter Bacanovic," the lawyers, Robert Morvillo and John Tigue, said in a statement.
Her lawyers have previously alleged that juror Chappelle Hartridge lied about legal problems in his background to get on the jury. Despite this claim, a federal judge rejected Martha Stewart's motion for a new trial earlier this month.
Bacanovic's lawyer, Richard Strassberg, said: "We believe perjury of a key government witness undermines any integrity in the jury's verdict and will require a new trial."
Some legal experts said Friday's development will help Martha Stewart, whose media empire, built on her homemaking expertise, has struggled since her legal troubles began.
"There's going to have to be a retrial. This was clearly at some level important testimony. The safest thing to do would be to grant a retrial," said Tai Park, a former prosecutor and white collar criminal defense partner in Shearman & Sterling.
"The government is either going to consent to a retrial because the jury verdict was tainted by potentially perjured testimony or the government is going to have to explain to the court why the prejudiced testimony was harmless -- in other words, that the testimony did not influence the jury's verdict," Park said.
Martha Stewart's conviction on conspiracy, making false statements and obstruction was related to her suspicious sale of stock in biotech company ImClone Systems Inc. in December 2001.
Prosecutors said she was tipped off that ImClone's founder Sam Waksal was dumping all his shares. The defense said there was a pre-existing deal to sell her ImClone stock if the price fell to $60.
The broker's worksheet listed various securities positions held by Martha Stewart and had Bacanovic's handwritten notations, including one to sell ImClone "at 60."
The government charged that Bacanovic added that notation to corroborate his and Martha Stewart's claim of a pre-existing agreement.
Larry Stewart testified the ink in the notation was different from other ink on the document.
"I would anticipate that the convictions are going to have to be thrown out," said Kevin Mahoney, a Cambridge, Mass., criminal defense lawyer who's written a Web log on the Martha Stewart case.
The evidence involving the notation "at 60" was "absolutely critical" to the government's prosecution, Mahoney said. "It was evidence that the government hammered most during the course of the case and what reflected most poorly on Stewart."
U.S. attorney David Kelley said the charges against Larry Stewart were "indeed troubling, very troubling, because a trusted lab examiner violated the public trust."
But during a news conference he added that "we are quite confident that the false testimony will have no impact on the convictions of Martha Stewart and Peter Bacanovic."
John Wing, a former federal prosecutor now in private practice, said the government may fend off a mistrial if the judge decides that Larry Stewart's testimony did not influence the guilty verdicts.
Working in the government's favor, he said, was that Bacanovic was acquitted on one charge of making false documents, specifically regarding the 'at $60' notation.
To Wing, now with Weil Gotshal & Manges, the acquittal on that charge could suggest the jury did not rely heavily on the 'at $60' notation in convicting Stewart and Bacanovic on the remaining charges.
Prosecutors could argue that the jury "had already discounted [Larry Stewart's] testimony." And that, added Wing, "could dampen the thrust of the defense's argument" that the now-suspect testimony was crucial to the jury's deliberations.
-- from staff and wire reports
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