NEW YORK, Feb. 13 — The federal judge overseeing Martha Stewart’s trial ruled Friday that prosecutors may not call expert witnesses to prove the most serious charge against her — that she manipulated the price of shares in her media company by publicly proclaiming her innocence in a federal investigation.

U.S. District Judge Miriam Goldman Cedarbaum granted a motion by the defense to bar testimony on the “question of whether a reasonable investor would have considered the statements important in making investment decisions.”

Stewart is charged with securities fraud, which carries a sentence of up to 10 years, for allegedly propping up the price of shares in her company by lying about her reasons for selling her stake in the biotechnology firm ImClone Systems Inc. on Dec. 27, 2001. Stewart said publicly that she sold the stock because she had previously agreed with her broker to do so if the share price dropped below $60.

The government contends that Stewart concocted the $60 story with Merrill Lynch & Co. broker Peter E. Bacanovic to deflect possible charges that she had inside information when she sold her 3,928 ImClone shares. Stewart also faces four counts of obstructing a federal investigation and making false statements, each of which carries a sentence of up to five years. Bacanovic faces charges of obstruction of justice and perjury.

Cedarbaum’s ruling prevents prosecutors from calling experts such as securities analysts to testify about the impact Stewart’s statements may have had on Martha Stewart Living Omnimedia Inc.’s share price. Cedarbaum agreed with the defense argument, made in a letter sent to the judge’s chambers but not publicly released, that the jurors should decide for themselves what impact Stewart’s statement may have had on investors.

Stewart’s defense described the ruling as a major victory, arguing that it would knock the legs out from the securities fraud charge. George Sard, a spokesman for Stewart, said that the ruling was “potentially very significant” and that Stewart was pleased with it.

Several outside legal experts said that the ruling was a significant setback for the government but that are other ways to prove the fraud charge, including displaying charts of the Martha Stewart Living Omnimedia stock price before and after Stewart’s public statements.

Cedarbaum also did not bar testimony from individual investors, a strategy used by prosecutors in the prosecution of former Tyco International Ltd. chief executive L. Dennis Kozlowski.

Last month, hedge fund official Leon G. Cooperman testified that Kozlowski told him that the board had approved a $20 million bonus payment to a board member for helping to broker a deal. After the conversation, Cooperman said, he purchased $50 million more worth of Tyco shares.

Cooperman, chairman of Omega Advisors Inc., said had he known the board did not approve the bonus, he would have “sold every share I owned, and being a hedge fund, I would short this stock with impunity.” Separately, fund manager Kenneth C. Feinberg of Davis Selected Advisors LP told the Tyco jury that he did not know about massive bonuses Kozlowski and co-defendant Mark H. Swartz were paid during a time period when he purchased more than 40 million shares of the company’s stock.

Kozlowski and Swartz are accused of stealing $170 million in improper bonuses and taking $430 million more in illicit stock sales. Each man denies wrongdoing. Personal accounts from investors have been one of the most “damaging” elements of the government’s case, defense lawyers said in court papers that unsuccessfully sought to throw out Cooperman’s testimony.

Lead Martha Stewart prosecutor Karen Patton Seymour said there are other ways to prove the securities fraud charge but did not elaborate. The prosecution expects to complete its case by Thursday.

In other action on Friday, the defense continued to try to poke holes in the testimony of Catherine M. Farmer, an FBI agent who took notes at two meetings between Stewart and lawyers from the Justice Department and the Securities and Exchange Commission. The government’s obstruction-of-justice case hinges on statement Stewart made during these meetings.

Stewart defense attorney John J. Tigue repeatedly suggested that Farmer’s notes could be incomplete or inaccurate, a possibility that Farmer acknowledged. “It’s possible you missed important things?” Tigue asked. Farmer said it was.

Tigue also repeatedly asked why there were no tape recordings made of the meetings, which took place on Feb. 4 and April 10 of 2002, and why no government officials other than Farmer took notes. “Don’t you think that is the minimum decent behavior for a witness that comes in?” Tigue asked.

Lead prosecutor Seymour then asked Farmer whether it was standard practice for only one set of notes to be taken and no tape recording to be made in informal interviews such as those with Stewart. Farmer said that it was.

Farmer has testified that Stewart said in a Feb. 4 interview that she could not recall whether she had a record at her office of a phone call Bacanovic placed to her on the day of the ImClone stock sale. The government claims that was a lie, saying Stewart had altered a record of the Bacanovic call just four days before the interview, then changed it back to its original form.

Cedarbaum and lawyers for both sides spent much of Friday afternoon arguing over what phone records the government could introduce as supporting evidence in the case. The government collected 3.5 million phone records and narrowed them down to a 40-page list of calls. The two sides managed to agree on only a few relevant calls, and Cedarbaum eventually sent the jury home early and instructed the two sides to negotiate over which calls could be introduced into evidence. The trial will resume on Tuesday.

Staff writer Carrie Johnson contributed to this report.

Reported By TechNews.com, http://www.TechNews.com

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