(Corrects spelling of Bottini in 13th paragraph.)

Oct. 8 (Bloomberg) -- The judge in Alaska Senator Ted Stevens's gift-hiding trial penalized prosecutors for failing to disclose evidence while rejecting the senator's latest bid for a mistrial.

U.S. District Judge Emmet Sullivan refused to end the trial or dismiss the case after the senator's attorneys accused prosecutors of improperly withholding evidence from them. The judge said he will instruct jurors to disregard some prosecution evidence and tell them the government knew some information it presented wasn't true.

``We're not talking about faulty recollection. The government was using evidence it knew wasn't true,'' Sullivan told lawyers in the case in Washington. ``I find this very, very troubling.''

Stevens, 84, the Senate's longest-serving Republican, is accused of failing to report more than $250,000 in free home renovations and other gifts from Veco Corp., an Alaska oil- services company, and its founder, Bill Allen. The senator's lawyers deny wrongdoing and say he paid every bill he received.

Defense lawyers said the government withheld information that Veco employee Dave Anderson was out of state at a time company accounting records showed that he worked hundreds of hours on the renovation of Stevens's home in Girdwood, Alaska.

``The government has responsibilities to ensure a fair trial,'' Stevens lawyer Robert Cary told the judge. ``Time and time again they have not lived up to their responsibilities. Enough is enough, your honor, and we think the case should be dismissed.''

`Pull a Fast One'

``There was no attempt to pull a fast one on this court'' by hiding evidence, prosecutor Brenda Morris told the judge.

``We believe we're still in a position where everyone here can get a fair trial,'' added another prosecutor, Nicholas Marsh.

The judge said evidence concerning the billing for hours worked on the Stevens home by Anderson and fellow Veco employee Robert ``Rocky'' Williams will be stricken from the record.

``You knew it was not true, that it was a lie,'' the judge told prosecutors.

Stevens's lawyers also said prosecutors yesterday introduced evidence during questioning of Allen that hadn't been provided to the defense -- a $44,339.51 check from Allen to an auto dealership to pay for a Land Rover.

Allen testified that he traded a new Land Rover to Stevens for a 1964 1/2 Ford Mustang worth $15,000 to $20,000, plus a check from the senator for $5,000.

Prosecutor Joseph Bottini told the judge the check wasn't important to the defense. ``They knew we were going to try to prove that the Land Rover cost $44,000,'' he said.

Evidence Rules

The judge said he disagreed and will tell jurors the government had failed to provide the check to the defense as it was required to do under evidence rules.

``I think that the government knew it had the check and decided not to turn it over,'' Sullivan said.

The defense has filed four requests for a mistrial. The judge previously denied one bid based on a defense claim that prosecutors withheld evidence about Allen.

Stevens's lawyers also said prosecutors told Veco employee Williams that he could return to Alaska on Sept. 25, the day testimony began. Defense lawyers said they found out three days later that Williams had evidence undermining the government's case.

Stevens's lawyers asked the judge to order their client's acquittal after prosecutors completed presenting their case.

The government's evidence ``is insufficient to prove any of the seven counts in the indictment beyond a reasonable doubt,'' the lawyers said in court papers.

The case is U.S. v. Stevens, 08cr231, U.S. District Court for the District of Columbia.

To contact the reporters on this story: Nadine Elsibai in Washington at nelsibai@bloomberg.net; Cary O'Reilly in Washington at caryoreilly@bloomberg.net

Last Updated: October 8, 2008 19:39 EDT