By Erin McClam
The Associated Press

NEW YORK - Telling careful lies but making careless mistakes, Martha Stewart and her stockbroker were bent on keeping investigators from the truth about why the homemaking icon sold stock, a federal prosecutor said Monday.

In a methodical three-hour closing argument, prosecutor Michael Schachter told jurors that Stewart and broker Peter Bacanovic believed they would never be caught in their deception.

"But Martha Stewart and Peter Bacanovic were wrong," Schachter said. "They left behind a trail of evidence exposing the truth about Martha Stewart's sale and exposing the lies they would tell."

Stewart and Bacanovic face federal charges related to the government's contention that they lied about why Stewart sold about $225,000 worth of ImClone Systems stock on Dec. 27, 2001.

Prosecutors say Bacanovic sent word to Stewart that ImClone CEO Sam Waksal and his family were frantically dumping their own shares. The stock fell sharply after the government announced the next day that it would not review an ImClone cancer drug.

Schachter spent much of his argument trying to dismantle the centerpiece of the pair's defense - that they had struck a deal before Dec. 27 to sell Stewart's shares when ImClone stock dropped below $60.

The prosecutor listed seven reasons jurors would know the $60 agreement was a lie, calling it "phony," "silly" and "simply an after-the-fact cover story."

Among the reasons: The pair have no record of having made the plan, other than a worksheet produced by Bacanovic with the notation "(at)60" next to ImClone stock - in a different ink from other marks on the page.

Schachter also listed inconsistencies - mistakes, he called them - in the stories Stewart and Bacanovic told federal investigators looking into the ImClone trade in early 2002.

For example, Bacanovic claimed they had the $60 conversation on Dec. 20, 2001. But Stewart placed it in late October or early November.

And Schachter took jurors back to Jan. 31, 2002, four days before Stewart was first questioned about ImClone, when she allegedly tampered with a log of a message Bacanovic had left her the day she sold.

Stewart quickly ordered her assistant to restore the message to its original wording, according to the assistant's testimony. But the fact that she altered it at all is evidence she was worried about why she had sold the stock, Schachter said.

"This event is devastating evidence that she committed the crimes that she's charged with," he said.

In his closing argument on behalf of Bacanovic, lawyer Richard Strassberg spent more than two hours attacking the credibility of Douglas Faneuil, Bacanovic's former assistant who was the government's star witness.

Faneuil initially told the government he handled Stewart's stock sale after Stewart asked for a stock quote. But he changed his story in June 2002, saying Bacanovic ordered him to pass along the Waksal tip, then pressured him to lie.

Faneuil and the government have a cooperation agreement - clear motive for him to lie, Strassberg said, even alluding to Sunday night's Academy Awards by suggesting Faneuil was acting on the stand.

Strassberg insisted Faneuil was starstruck by Stewart, and suggested it was he - not Bacanovic - who came up with the idea to tell Stewart about the Waksal selling.

"He lies by just twisting a few little facts, a few key facts," Strassberg said. "But those facts are crucial."

Strassberg stressed Bacanovic's reputation as a trustworthy, meticulous broker at Merrill Lynch. He said Bacanovic never would have risked his career for the Stewart trade, which made him just $450 in commissions.

"It makes no sense, what it is they're asking you to believe," Strassberg said.

He also compared the government's case with a house of cards.

"When you push on it, when you look at it closely, it collapses," he said. "Because it has no substance. It has no foundation."

Strassberg's closing argument was to continue Tuesday morning, and Stewart lawyer Robert Morvillo was also to present his closing argument Tuesday. Jurors could begin deliberations as early as Wednesday.

Bacanovic faces charges that carry 25 years, but sentencing guidelines could mean a much shorter sentence if he is convicted on all counts.

The counts against Stewart carry up to 20 years in prison, although federal sentencing guidelines could result in a sentence of just a year or so.

Last week, U.S. District Judge Miriam Goldman Cedarbaum dismissed a count of securities fraud against Stewart, which accused her of misleading investors in her own media company when she claimed publicly that she sold ImClone because of the $60 deal.

The judge told jurors Monday not to speculate about why that count was no longer part of the case, saying only that it was for "reasons of law which are not your concern."

Stewart took notes during the argument. Actor Brian Dennehy showed up in court to support her. Earlier, Bill Cosby and Rosie O'Donnell also appeared at the trial.