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CNN analysts on Martha Stewart trial

Jeffrey Toobin and Andy Serwer
Jeffrey Toobin and Andy Serwer

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NEW YORK (CNN) -- Jury selection starts Tuesday in the trial of Martha Stewart, who is accused of obstruction of justice, making false statements and securities fraud. Stewart sold nearly 4,000 shares of ImClone Systems stock a day before the company's application for approval of an experimental cancer drug was rejected.

CNN contributor and Fortune columnist Andy Serwer and senior legal analyst Jeffrey Toobin joined anchor Bill Hemmer Tuesday to discuss the case.

HEMMER: Let's take some basic legal approach here -- charged with conspiracy, with whom?

TOOBIN: Peter Bacanovic, sort of the forgotten man in this story. He was the stockbroker at Merrill Lynch, who did the transaction, who actually initiated the transaction, selling the ImClone stock.

Very interesting that he has not cut a deal with prosecutors. I think a lot of people expected he would flip and testify against Martha Stewart. He has not done that. They are still both co-defendants. The fact that he has not flipped against Martha Stewart is a very good fact for her defense.

HEMMER: Fraud, what's the allegation?

TOOBIN: That by denying that she was guilty in any way, that was artificially pumping up her stock price. Very unusual theory. The judge said it was novel, but she allowed it to go forward.

HEMMER: How do prosecutors allege that she obstructed justice.

TOOBIN: By lying to prosecutors about the reason for selling stock. Very straightforward theory.

HEMMER: There are a number of theories right now playing into the case. Do you two buy into the possibility that the stock market doing better now portends better for Martha Stewart with the Nasdaq above 2,000 as opposed to 1,200?

SERWER: Well, maybe there's some truth to that. People have forgotten about the terrible losses they have suffered in the stock market over the past couple of years, with the market bouncing back.

It's interesting if you look at Martha Stewart's own stock, yes, it has dropped a lot, going from about $19 to about $10 today, but it had been even lower. It's come back.

The other important point about the stock market is, that this is a stock that's not widely held. There wasn't a whole lot of collateral damage to investors, like there was in Enron or WorldCom. So it's not like you can point a lot of fingers and say this woman ruined a lot of people's 401K.

TOOBIN: I also think a factor is that Enron is out of the news, Tyco is pretty much out of the news. This sort of white-collar executive malfeasance is not a big story. That helps Martha Stewart. But also what helps her is the fact that the CEO of Enron was never prosecuted -- the big fish have gotten away, and why are they picking on Martha Stewart. That's an argument you could make there.

SERWER: And those are the companies -- WorldCom, Enron and Tyco -- they destroyed tens of billions of dollars of shareholder value. Here's a person who is a celebrity, a woman. In theory it's more of a straightforward case, it's not as complicated as Enron, certainly, so are they picking on her? Will that enter into the jurors' minds?

HEMMER: The way [Toobin] sized it up Monday -- she says she had an agreement to sell the stock at a certain price, but the government said she had information that told her the stock price was going to go down and she was going to lose money. That is the entire case in a nutshell.

TOOBIN: That's really the whole case. It's really not that complicated. The government and the defense both said this trial is going to last six weeks, but I bet it takes more like three or four weeks.

HEMMER: Jury selection -- how long?

TOOBIN: Jury selection, that's a set time limit, it will be about two weeks. Opening statements on January 20th, but I think it will be over in a month.

SERWER: It could be, and I think this thing, if it ends quickly, I think she will bounce back from this. Her career isn't over at all, especially if she comes out favorably.


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