Making Sense of Martha Stewart's Defense

Jan. 29 -- The Martha Stewart case is a weird one any way you slice it.

Her defense asks the jury to question why a woman of such wealth would cheat or lie to prevent a mere $50,000 loss in her stake in ImClone.

As her trial in a Manhattan federal court got under way Tuesday, her lawyer Robert Morvillo pointed out that her roughly 4,000 shares of ImClone Systems represented much less than 1 percent of her net worth. Her sale of that stake for roughly $228,000 came just weeks before she would sell shares in her own company for $45 million.

But Morvillo and Richard Strassberg, lawyer for Stewart's broker and co-defendant Peter Bacanovic, propounded a defense that was at least as strange as the charge that the one-time billionaire went to so much trouble for fifty grand.

Stewart, they said, was engaged in year-end tax selling, trying to find losses to offset her gain from the sale of 255,000 shares of Martha Stewart Living Omnimedia, booking a capital gain in the neighborhood of $5 million, depending on when in 2000 she sold her shares.

Selling her ImClone shares would provide little offset to the gain. In fact, if, as Morvillo said, she bought the shares in 1999, Stewart would have recorded a substantial gain from the sale. ImClone's share price never exceeded $22 in 1999 (adjusting for splits).

If Stewart planned to sell at $60 (or $58.43, her actual sale price) she would not record a loss — so there would be no tax loss.

Prosecution: 'A Secret Tip'

On the other hand, the case for the prosecution outlined by assistant U.S. attorney Karen Seymour was as expected.

She said that Bacanovic tipped her off about Samuel Waksal, ImClone's then chief executive, and his family members trying to dump their shares in the company on Dec. 27, 2001, just before an announcement that the U.S. Food and Drug Administration was about to reject ImClone's application for the approval of its one viable product, the highly touted cancer drug Erbitux.