Opening statements in the widely-watched trial are scheduled to begin on Tuesday morning in Manhattan federal court with the prosecution's key witness expected to take the stand as early as this week.
The trial is likely to last about a month.
Prosecutors will try to convince the eight-woman, four-man jury Stewart tried to hide a stock sale based on a confidential tip, even though she is not charged with insider trading. Stewart's defence team maintains she did nothing wrong and is being singled out for being a celebrity.
In a blow to the defence team, US District Judge Miriam Cedarbaum ruled on Monday Stewart's lawyers could not argue before the jury she was being prosecuted because of her fame. The judge also barred Stewart's lawyers from asking jurors to speculate why prosecutors did not bring insider trading charges against their client.
Stewart, who founded Martha Stewart Living Omnimedia (MSO N), and her former Merrill Lynch & Co (MER N) broker, Peter Bacanovic, are accused of obstructing an investigation into her sale of shares of ImClone Systems Inc (IMCL O), a biotech company founded by her friend Sam Waksal.
The stock sale came just a day before ImClone shares tumbled on news that health regulators had rejected a key drug application by the company.
Ten years imprisonment
Both defendants are accused of lying to investigators and obstruction of justice. Stewart has also denied a charge of securities fraud that could bring her 10 years in prison.
Key testimony for the government's case is expected to come from Douglas Faneuil, Bacanovic's former assistant at Merrill Lynch, set to be the prosecution's third witness. Faneuil has pleaded guilty in the case and is cooperating with prosecutors.
Stewart (R) has denied a charge
of securities fraud
Under his plea agreement, Faneuil admitted lying to investigators twice in 2002 about the circumstances surrounding the stock sale.
Faneuil is expected to contradict Stewart and Bacanovic about the reasons behind the sale of ImClone stock when he takes the stand. But defence lawyers have issued subpoenas
seeking to challenge his credibility.
'Head on a silver platter'
They want to see papers relating to Faneuil's statement to prosecutors that his former defence lawyer advised him to lie to regulators. It is unclear why Faneuil was told to lie, but the advice was given after the lawyer spoke to a Merrill Lynch attorney.
Faneuil told prosecutors he also learned from his former defence lawyer that "Merrill Lynch had cut a deal with the US attorney's office to give them Sam Waksal's head on a silver platter and to look the other way with regards to Martha Stewart," Robert Morvillo, Stewart's defence lawyer, said on Monday.
Waksal is serving a seven-year prison sentence after pleading guilty to securities fraud, perjury and other crimes relating to ImClone. A Merrill Lynch spokesman had no comment.