NEW YORK - A federal judge dismissed yesterday the most serious charge against Martha Stewart, an accusation of securities fraud, but left four other charges in place.
The decision was made known just days before the case against Stewart is expected to go to the jury.
The fraud charge accused Stewart of deceiving investors in her company, Martha Stewart Living Omnimedia Inc., by lying about the reasons for her sale of stock in ImClone Systems Inc. in 2001.
Judge Miriam Goldman Cedarbaum of U.S. District Court in Manhattan left intact charges of conspiracy, obstruction of justice and two counts of lying to investigators.
"In assessing the sufficiency of the evidence, I have concluded that no reasonable juror can find beyond a reasonable doubt that the defendant lied for the purpose of influencing the market for the securities of her company," Cedarbaum wrote in a 23-page ruling.
"Another way of putting it would be that, in order to find the essential element of criminal intent beyond a reasonable doubt, a rational juror would have to speculate."
Stewart, in a posting on her personal Web site, www.martha talks.com, said, "I'm pleased that the judge has dismissed the most serious of the charges against me, concluding that there is no evidence to support it."
Cedarbaum declined to throw out any of the five charges against Stewart's former stockbroker and co-defendant, Peter E. Bacanovic.
After the ruling, shares in Stewart's company rose $1.43, or 10.9 percent, to close at $14.53 on the New York Stock Exchange.
Stewart and Bacanovic have been charged with conspiring to hinder a government investigation into Stewart's stock sale.
Prosecutors alleged that Stewart was tipped by Bacanovic to sell her 3,928 shares of ImClone because the family of her friend, Samuel D. Waksal, at that time the head of ImClone, were trying to sell their own.
The sales came shortly before negative news that the Food and Drug Administration was rejecting Erbitux, an ImClone cancer drug.
Waksal is serving a seven-year, three-month sentence for insider trading, perjury and other crimes related to the ImClone scandal.
Stewart and Bacanovic told investigators that the sale took place for more innocuous reasons, including an agreement the two said they made to sell if ImClone's share price dropped below $60.
When the trial opened in January, Stewart's lawyer, Robert G. Morvillo, was ordered by Cedarbaum not to dwell on the novel aspects of the securities fraud charge, but he nevertheless referred to it in court as "the most bizarre charge in this case."
"The essence of the allegation was that she was tipped by Sam Waksal," Morvillo said. "The essence of her denial was that 'I was not tipped by Sam Waksal.' "
Stewart's lawyers had asked Cedarbaum to acquit her on all charges. But they took particular aim at the securities fraud charge, which rested on a relatively unusual application of federal laws.
Prosecutors argued that when Stewart publicly professed her innocence in the months after her sale of the ImClone shares, she committed securities fraud because she made false and misleading statements that she knew would be relied on by investors in her own company, Martha Stewart Living.
If convicted of securities fraud, Stewart could have faced a prison sentence of up to 10 years. Each of the remaining four counts against her carries a maximum prison sentence of five years.
Closing arguments in the trial are scheduled to begin Monday, with jury deliberations expected to begin Wednesday.