U.S. v. Stewart

• Decision Date: 06 January 2006
• Docket Number: Docket No. 04-4081(CON)-CR.,Docket No. 04-3953(L)-CR.
• Citation: 433 F.3d 273
• Parties: UNITED STATES of America, Appellee, v. Martha STEWART and Peter Bacanovic, Defendants-Appellants.
• Court: U.S. Court of Appeals — Second Circuit

433 F.3d 273

UNITED STATES of America, Appellee, v. Martha STEWART and Peter Bacanovic, Defendants-Appellants.

Docket No. 04-3953(L)-CR.

Docket No. 04-4081(CON)-CR.

United States Court of Appeals, Second Circuit.

Argued: March 17, 2005.

Last papers submitted: August 16, 2005.

Decided: January 6, 2006.

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Walter E. Dellinger, O'Melveny & Myers, LLP (Pamela A. Harris, Jeremy Maltby, Matthew M. Shors, Toby Heytens, Maritza U.B. Okata, on the brief), Washington, DC, Martin G. Weinberg, Boston, MA, David Z. Chesnoff, Las Vegas, NV for Defendant-Appellant Martha Stewart.

Richard M. Strassberg, Goodwin Procter, LLP (David J. Apfel, Cheryl R. Brunetti, Shannon J. Siragusa, on the brief), Boston MA for Defendant-Appellant Peter Bacanovic.

Michael S. Schachter, Assistant United States Attorney (David N. Kelley, United States Attorney for the Southern District of New York, Karen Patton Seymour, William A. Burck, Celeste L. Koeleveld, Assistant United States Attorneys, on the brief), New York, N.Y. for Appellee United States of America.

Before: NEWMAN, WESLEY, and HALL, Circuit Judges.

HALL, Circuit Judge.

Defendants Martha Stewart and Peter Bacanovic appeal from the final judgments of conviction entered July 20, 2004 in the United States District Court for the Southern District of New York. Following trial before the Honorable Miriam Goldman Cedarbaum, the jury found Stewart and Bacanovic guilty of conspiracy, concealing material information from and making false statements to government officials, and obstructing an agency proceeding; the jury also found Bacanovic guilty of perjury. On March 17, 2004, this Court granted Stewart's request for an expedited partial remand to permit the District Court to reconsider her sentence in light of United States v. Crosby, 397 F.3d 103 (2d Cir.2005). On remand, the District Court decided not to modify the sentence that was imposed on July 16, 2004. United States v. Stewart, No. 03 CR 717(MGC), 2005 WL 831272 (S.D.N.Y. Apr.11, 2005). Bacanovic requests remand of his sentence under Crosby at this time.

For the reasons set forth below, we conclude that none of the numerous grounds upon which Defendants challenge their convictions provides a basis to disturb the jury's verdict and, therefore, we affirm the judgments of the District Court and remand the case solely for consideration of whether to modify Bacanovic's sentence.

BACKGROUND

A. Procedural history

Defendants Martha Stewart and Peter Bacanovic were charged in Superseding Indictment S1 03 Cr. 717 with offenses that arose from their communications to government investigators who were probing trading activity of ImClone Systems, Inc. ("ImClone") stock on December 27, 2001, just ahead of the company's public announcement that its lead pharmaceutical product would not receive government approval. Count One charged that Defendants conspired to obstruct justice, make false statements and commit perjury in violation of 18 U.S.C. § 371; Count Two charged Bacanovic with making false statements in violation of 18 U.S.C. § 1001(a)(1) and (2), and Counts Three and Four charged Stewart with the same offense; Count Five charged Bacanovic with making and using a false document in violation of 18 U.S.C. § 1001(a)(3); Count Six charged Bacanovic with perjury in violation of 18 U.S.C. § 1621; Counts Seven and Eight charged Bacanovic and Stewart, respectively, with obstructing an agency proceeding in violation of 18 U.S.C. § 1505; and Count Nine charged Stewart with securities fraud in violation of 15 U.S.C. §§ 78j(b), 78ff and 17 C.F.R. § 240.10b-5.¹

The trial lasted five weeks. At the close of evidence, pursuant to Fed.R.Crim.P. 29, the District Court granted Stewart's motion for judgment of acquittal as to Count Nine. The jury deliberated for three days and returned a verdict convicting Stewart on specifications in Counts One, Three, Four and Eight and convicting Bacanovic on specifications in Counts One, Two, Six and Seven. The jury acquitted Stewart of one specification in Count Three and one specification in Count Four and acquitted Bacanovic of falsifying a worksheet document as charged in Count Five, as well as one specification in Count Two and several specifications in Count Six. The District Court denied Defendants' post-trial motions for a new trial.

On July 16, 2004, the District Court sentenced each Defendant to five months' incarceration to be followed by a two-year period of supervised release, five months of which were to be served in home confinement. Stewart and Bacanovic were ordered to pay fines of $30,000 and $4,000, respectively, as well as a mandatory $400 special assessment. Anticipating a decision from the Supreme Court addressing the United States Sentencing Guidelines, the District Court stayed execution of the sentences pending appeal. The stays were subsequently vacated and amended judgments of conviction were entered as to Stewart on September 22, 2004, and as to Bacanovic on December 29, 2004.

In this appeal, Stewart, who had already served the period of incarceration, requested immediate remand of the supervised release portion of the judgment, pursuant to Crosby, to give the District Court an opportunity to consider whether to modify the sentence in light of the Supreme Court's intervening decision in United States v. Booker, 543 U.S. 220, 125 S.Ct. 738, 160 L.Ed.2d 621 (2005). This Court granted Stewart's application and, on remand, the District Court declined to modify the original sentence, concluding that it would have imposed the same sentence even if the Sentencing Guidelines had not been mandatory at the time of sentencing. See Stewart, 2005 WL 831272 at *1. Bacanovic, who completed the incarceration portion of his sentence in June 2005, now requests that his sentence be remanded to the District Court for consideration of whether to modify under Crosby. His application is granted.

B. The trial

At trial, the Government sought to prove that Stewart and Bacanovic conspired and acted to mislead the ImClone investigation in order to deflect attention from the fact that, on December 27, 2001, Stewart sold shares of ImClone from her personal account at Merrill Lynch & Co. ("Merrill Lynch") after she learned from Bacanovic, her broker, that ImClone's CEO, Samuel Waksal, was attempting to sell all of his own shares in the company. In connection with the investigation, Stewart was interviewed twice, on February 4, 2002 and April 10, 2002, by the Securities and Exchange Commission ("SEC"), the Federal Bureau of Investigation ("FBI") and members of the United States Attorney's Office for the Southern District of New York (the "U.S. Attorney"). Those agencies interviewed Bacanovic on January 7, 2002, and he testified before the SEC on February 13, 2002.

At trial, the Government offered the testimony of SEC attorney Helene Glotzer and FBI agent Catherine Farmer, who attended each of the Defendants' interviews, to inform the jury of what Stewart and Bacanovic said — and did not say — about Stewart's ImClone investment, its liquidation, and the Defendants' communications regarding those matters on and after December 27, 2001. In addition, the jury heard a tape recording of Bacanovic's SEC testimony.

To demonstrate that the story Defendants told to investigators was a cover-up of the events of December 27th, the Government called a number of witnesses to testify about their recollections of what happened that day and in the following months. Various portions of the testimony of those witnesses were corroborated by phone records, copies of emails and phone message logs. Among those who testified in the Government's case-in-chief were Stewart's assistant Ann Armstrong, Stewart's friend Mariana Pasternak, Sam Waksal's assistant Emily Perret, Bacanovic's assistant Douglas Faneuil, who appeared pursuant to a cooperation agreement, and Merrill Lynch compliance personnel.

Both the prosecution and the defense offered testimony from securities analysts on the volume and price movement of ImClone on and around December 27th. The jury heard opinion testimony regarding Bacanovic's allegedly altered worksheet from the Defendant's ink expert and from the Government's ink expert, Lawrence F. Stewart, whose testimony later created a separate controversy (see Point II.A, infra).

Bacanovic called one of his clients to testify about his character and expertise as well as certain trading practices and preferences. He also offered the testimony of Faneuil's former attorney and Stewart's business manager to rebut parts of Faneuil's testimony. Stewart called one witness, an attorney who attended and took notes at the February 4th interview. The following story unfolded at trial.

In the fall of 2001, Stewart was the CEO of Martha Stewart Living Omnimedia, Inc. ("MSLO"), and Bacanovic was a stock broker at Merrill Lynch. Among Bacanovic's clients were Stewart, Samuel Waksal, who was then the CEO of ImClone, and Waksal's daughter Aliza. At that time, ImClone had great expectations for its lead product, the cancer-treating drug Erbitux. The biotechnology company was anticipating that the Food and Drug Administration ("FDA") would approve its application for the drug by early 2002. With the prospect of commercialization on the horizon, Bristol-Myers Squibb made a tender offer to purchase 20 percent of ImClone's outstanding shares at a price of $70 per share and agreed to fund ImClone's continued development of Erbitux while undertaking responsibility for sales and marketing following FDA approval.

In October 2001, the MSLO pension fund held 51,800 shares of ImClone, apparently acquired over the course of the previous decade, and Stewart owned an additional 5,000 shares personally. All of the shares in the MSLO pension fund and those held by Stewart individually were tendered in response to...