Stewart accused of trying to inflate stock by pleading innocence

MARTHA Stewart is accused of deliberately trying to inflate the stock of her own company — simply by declaring her innocence.

Inserting an unusual twist into their indictment of the domestic diva, prosecutors charge that she committed a crime when she stood up in public last summer and denied engaging in insider trading.

"I was a little surprised at that," said Richard A Serafini, a former economic crimes prosecutor in New York.

"There's kind of a natural tendency when you're confronted with something to deny it. Now they're charging it as market manipulation."

Legal experts said the charge is a high-risk move designed to convince a jury that Ms Stewart hurt thousands of ordinary stockholders in Martha Stewart Living Omnimedia by trying to cover up her legal problems.

Ms Stewart was indicted on Wednesday on five federal counts including obstruction of justice, conspiracy and lying to investigators tied to her December 2001 sale of nearly 4,000 shares of ImClone Systems stock.

She pleaded innocent to all charges, but could go to prison for several years if convicted. Her former stockbroker, Peter Bacanovic, was also indicted and pleaded innocent.

Ms Stewart dumped her ImClone stock one day before the government issued discouraging news about an ImClone cancer drug.

The government says Ms Stewart had inside knowledge the stock was about to plummet.

But it was the charge of securities fraud, placed near the end of the 41-page indictment, that surprised many legal watchers.

The charge cited a speech Ms Stewart gave at an investors conference in New York on June 19, 2002, a week after ImClone founder Samuel Waksal, her longtime friend, was arrested on fraud charges.

In the speech, Ms Stewart maintained her sale of ImClone had been perfectly legal, and that she was co-operating "fully and to the best of my ability with investigators".

Prosecutors say those were lies designed to pump up the stock price of her company. Martha Stewart Living Omnimedia rose more than $2, or about 14%, to $16.45 after her speech. The stock now trades at about $10.

"What the government is trying to suggest here is that this was not a victimless crime," Robert Mintz, a former federal prosecutor, said. "That is clearly the most controversial part of this indictment."

Ms Stewart, 61, quit as head of the company after the indictment, but said she would stay on the board and remain the company's creative chief.

On Thursday, she made an appeal to public opinion through a, taking out a full-page ad in USA Today and launching a website to pronounce herself innocent.

"The government's attempt to criminalise these actions makes no sense to me," Ms Stewart writes in an open letter on the site, which invites her fans to e-mail her with their thoughts.

While legal experts say the securities-fraud charge could be a reach for prosecutors, they say the rest of the indictment amounts to a daunting case against Ms Stewart.

Critical to the government's case is a claim that Ms Stewart went out of her way to cover up a message from

Bacanovic on the day of the ImClone stock sale in which he said he believed the stock would fall.