New York A federal judge Tuesday refused to dismiss a securities fraud charge that accuses Martha Stewart of deceiving her stockholders when she publicly declared her innocence in the insider-trading scandal.
Eight weeks before the home-decorating authority goes to trial, U.S. District Judge Miriam Goldman Cedarbaum brushed aside defense arguments that the charge violates Stewart's free-speech rights under the First Amendment.
"Such false factual statements are not protected by the First Amendment," Cedarbaum said.
The judge also refused, for now, to dismiss an obstruction of justice charge. She said it would be appropriate for the defense to make such a request only after the government had presented its case to a jury.
Stewart, 62, is accused of conspiracy, obstructing justice, securities fraud and two counts of lying to investigators about her 2001 sale of about 4,000 shares of ImClone Systems just one day before a negative decision from the Food and Drug Administration sent the stock plummeting.
Prosecutors contend she was tipped that the family of ImClone founder Sam Waksal was trying to sell its shares. Stewart has denied that, claiming she had a standing order with her stockbroker to sell the stock when it fell to a certain price.
The securities fraud count accuses her of deceiving shareholders when she publicly declared her innocence and said she was cooperating with investigators.
Her lawyers said the obstruction count should be dismissed because none of Stewart's statements to investigators could have hindered the federal investigation into her stock sale.
The government said both charges were proper.
In the case of the securities fraud count, "Stewart did not merely express a belief that she would be cleared of accusations of wrongdoing," prosecutors said in court papers. "Instead, Stewart gave a forceful, detailed and false explanation for her sale of ImClone."