Expert witness in Stewart case is charged with lying at trial

Defense appeal expected in light of prosecutors' act


NEW YORK - The case against Martha Stewart took a strange new twist yesterday as the government charged an important witness with lying repeatedly at her trial.

The witness, Larry F. Stewart, the laboratory director for the Secret Service who served as the prosecutors' expert on ink, was charged with two counts of perjury.

Prosecutors have essentially accused him of exaggerating his role in analyzing critical documents used as evidence at the trial and of lying about his knowledge of a technical book his lab colleagues were writing.

Lawyers said it was too early to tell whether Larry Stewart's statements, if indeed false, would result in a successful appeal, but the perjury charges offer fresh and potent ammunition to lawyers for Martha Stewart. (The two Stewarts are not related.)

"Prior to today's events, the appellate issues were not all that compelling," said Jason Brown, a former head of the criminal division of the U.S. attorney's office in Brooklyn who now practices at Holland & Knight. "Now I think they're in the hunt."

By charging Larry Stewart with perjury, the prosecutors are driving home their claim that they were not aware of any possible false testimony at the time of the trial. But the move also complicates their position.

"This is a prosecutor's worst nightmare," Brown said, "a government witness whose false testimony at a prominent trial rose to the level of warranting a perjury prosecution."

The arrest yesterday is the second surprising development since Martha Stewart was convicted in March on charges that she lied about a stock sale in December 2001. Defense lawyers have asked for a new trial once already, contending that one of the jurors who heard the case against Stewart lied about his background. That motion was denied, but another is now all but certain.

"Today's charges are indeed troubling," David N. Kelley, the U.S. attorney in Manhattan, said at a hastily announced news conference yesterday afternoon. But he was quick to emphasize that even if Larry Stewart lied on the witness stand, his conclusions about evidence at the trial should be allowed to stand.

"We are quite confident," Kelley said, "that the false testimony will have no impact" on the convictions.

Trial `flawed, unfair'

The two perjury counts do not appear to go directly to the heart of Stewart's testimony. Some of the statements that investigators assert Stewart made after the trial, however, could be used to undermine the analysis conducted by his laboratory.

Lawyers for Martha Stewart issued a statement in response to news of the arrest, contending that it "clearly demonstrates that the trial of Martha Stewart was fatally flawed and unfair."

"This is an indication that not one but at least two significant perjuries took place during the course of the trial process," they argued. "If anyone believes that Martha Stewart was not prejudiced, they are extremely naive."

Martha Stewart was convicted on charges that she lied about the reasons that she sold shares in ImClone Systems, a company at the time run by her friend Samuel D. Waksal. The document that Larry Stewart testified about was important because it contained the notation "(at)60," which defense lawyers argued showed that Martha Stewart had a pre-existing agreement with her broker to sell ImClone at $60 a share.

Prosecutors said that she sold the shares shortly before the stock price fell sharply because she learned that members of Waksal's family were trying to dump their shares. Peter E. Bacanovic, Stewart's broker, was convicted along with her. A spokesman for Bacanovic said he would also seek a new trial.

The jury appeared to reject prosecutors' claim that Bacanovic had added the "(at)60" to provide false evidence of a pre-existing sale agreement and declined to convict him on a charge of falsifying documents.

The prosecution had Larry Stewart testify to support their claim that Bacanovic had added the notation separately from other marks on the document; the defense countered with its own ink expert.

Role in other cases

Larry Stewart has served as an expert in other prominent cases, including trials involving the authenticity of documents used in a Nazi war crimes case. He also testified before Congress in 1999 about forged documents and counterfeit currency.

Kelley said it was a "fair assumption" that the government would review other cases Larry Stewart was involved in.

Asked why problems with his testimony were not announced until yesterday, Kelley said, "This whole episode unfolded very recently and in a very short period of time."

Secret Service agents became aware of concerns about perjury about 10 days ago, Kelley continued, and his office was notified shortly afterward.

The perjury charges present a complicated challenge for the government, Brown, the former prosecutor, said. "On the one hand, they have to argue that Larry Stewart materially lied during his testimony," he said. "On the other hand, they have to argue that somehow that did not affect the outcome of the Martha Stewart trial."

But it is difficult to predict whether an appellate court would order a new trial, said William Pollard, a former federal prosecutor who practices at Kornstein Veisz Wexler & Pollard in New York.

"No one can give you a decent read on the impact on an appeal unless they know the record, unless they can determine whether the alleged perjurious testimony was such that, but for that testimony, the jury would not have convicted," Pollard said. "It's a very high standard."

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