By Stephen M. Silverman
Updated January 27, 2004 09:45 AM

Kicking off the first day of arguments in Martha Stewart’s criminal trial, federal prosecutor Karen Patton Seymour accused the domestic diva of lying in order to mask evidence of a suspicious stock sale after she received an inside tip from her broker.

In her opening statement, Seymour said Stewart and her Merrill Lynch broker, Peter Bacanovic, 41 (who is also on trial), “decided to lie to investigators and come up with a cover up, a false story,” to hide that she sold her shares “because she was told a secret,” Reuters reports.

Stewart, 62, is on trial for allegedly lying to authorities — but not for insider trading. She’s pleaded innocent to the charges.

Seated up front and wearing an olive-colored pantsuit, Stewart reportedly listened intently as prosecutor Seymour delivered the opening statements to the packed courtroom. Among those in attendance: Stewart’s mother, daughter, sister and friends.

Her lawyers followed with their opening statements. Before the trial, they pushed the defense that their client did nothing wrong and is being singled out solely because of her celebrity.

But in a blow to the defense team, U.S. District Judge Miriam Goldman Cedarbaum ruled that Stewart’s lawyers could not argue before the jury that she’s being prosecuted because of her fame.

The judge also prohibited Stewart’s lawyers from asking jurors to speculate why prosecutors did not bring insider-trading charges against Stewart.

The trial, which is expected to last a month, will have prosecutors trying to convince the eight-woman, four-man panel that Stewart obstructed justice, made false statements and committed securities fraud in trying to hide the questionable sale of stock in ImClone. Shares of the biotech company tumbled in value one day after Stewart’s transaction. Securities fraud can carry a sentence of up to 10 years in prison.

The feds’ key witness is Bacanovic’s former assistant at Merrill Lynch, Douglas Faneuil, who has already pleaded guilty in the case and is cooperating with prosecutors. Under his plea agreement, Faneuil, who is expected to contradict Stewart’s and Bacanovic’s stories, admitted lying to investigators twice in 2002 about the circumstances surrounding the stock sale.

Faneuil is expected to be the third witness in the trial.