Martha Faces The Future

Martha Stewart exits Manhattan federal court after meeting with a probation officer for about an hour Monday, March, 8, 2004, in New York.
CBS/AP
A source says the board of directors for Martha Stewart's namesake company Martha Stewart Living Omnimedia, Inc. did meet Monday, as expected, to discuss Stewart's future role in the business.

Exactly what they said, and what, if anything, was decided has not been announced.

Stewart stepped down as chief executive and chairman of the board in June, but she's still chief creative officer and a member of the board, at least for now.

With her conviction, the government will likely press to have Stewart removed from the board, but the big question is how involved in the company she will be. Stewart's name, now tainted by a conviction, is stamped on a wide variety of products, from TV shows to magazines and merchandise.

The company said the board would "meet promptly to carefully evaluate the current situation and take actions as appropriate." The company also noted that its management and $169 million cash position, with no debt, "are more than sufficient to continue MSO's development as a leading 'how-to' brand-building company," reports CBS MarketWatch.

Some observers expected Stewart would resign from the board of the company she founded after a federal jury convicted her Friday on four counts of obstructing justice and lying to investigators about selling shares of biotech firm ImClone Systems, Waters reports.

Investors dumped the shares, which were off 90 cents, or 8.1 percent, to $9.96 recently after touching an intraday low of $9.25. Since late Friday, the shares have plunged more than 35 percent, according to CBS MarketWatch.

Stewart's syndicated television show, "Martha Stewart Living," was taken off the air on Viacom-owned CBS and UPN stations Monday. The show appears on other networks' channels.

Adman Jerry Della Femina, a friend of Stewart, said her company will survive.

"There isn't anyone last night who said 'We were going to have chicken pot pie from Martha Stewart's cookbook, we can't eat that tonight.' Or 'Get those Martha Stewart sheets off the bed, we have to go to sleep,'" Della Femina said on The Early Show. "The fact, is she is a product that will survive."

Others voiced doubts over the company's viability.

"The company won't necessarily fold overnight, but it does have an uphill struggle in rebuilding its business," T.K. MacKay of Morningstar told CBS News Correspondent Anthony Mason.

Many of Stewart's customers have remained loyal. But advertisers have not stuck by the domestic diva, reports Mason. Publishing is half her business and Martha Stewart Living Magazine lost nearly 35 percent of its ad pages last year and if off 30 percent so far for this year.

"It's going to take a lot to convince advertisers to come back to Martha Stewart Living magazine, if at all," says MacKay.

The stock has plunged 35 percent since the verdict Friday, and Steward still owns more than 60 percent.

A paper billionaire only a few years ago, Stewart's net worth is now estimated a third of that, and she will have a hard time running her business from jail, reports Mason.

"Federal Bureau of Prisons policy specifically precludes an inmate from participating in a business in any way shape or form," says David Novak, who served a year in federal prison for mail fraud.

Novak told Mason most of Stewart's fellow inmates, should she go to jail, will be street criminals like drug offenders. "Make no mistake about it, it is prison," he said.

Stewart thanked viewers of her television shows and readers of her magazines and Web sites for their support on Monday after meeting with a probation officer following her conviction for lying about a stock sale.

She made the remarks just before being driven away from a lower Manhattan courthouse, where she met with a probation officer for about an hour.

"I want to thank my readers, my viewers and the Internet users," Stewart said. "I just want to thank everyone for their support."

The probation meeting is the first step toward sentencing on June 17. While lawyers did not comment on what took place at the meeting, newly convicted defendants typically give basic information about themselves.

Stewart's remarks were her second since being convicted. As she left the courthouse on Friday after the verdict was announced, the Daily News asked her to comment on the fairness of the trial. She replied, "The unfairness of the trial, that's the right comment."

Peter Bacanovic, the former stockbroker who was convicted along with Stewart on Friday, spent about a half-hour at the same courthouse earlier in the day at his own probation meeting.

Bacanovic and Stewart are expected to get 10 to 16 months in prison after they were each convicted on four counts at their closely watched criminal trial.

Jurors found the pair lied about why Stewart sold 3,298 shares of ImClone Systems stock on Dec. 27, 2001, just before it plunged on a negative report from government regulators.

Stewart and Bacanovic claimed they had a standing agreement to sell when the price fell below $60. But the government contended that was a cover story and that Stewart sold because she was tipped by her broker that ImClone CEO Sam Waksal was frantically trying to dump his own holdings.

Waksal later admitted selling his stock based on advance word of the FDA decision. He is serving seven years in prison for insider trading.

Stewart was convicted of conspiracy, making false statements and obstruction of justice. Bacanovic was convicted of conspiracy, false statements, obstruction and perjury — but cleared of falsifying a document.

U.S. District Judge Miriam Goldman Cedarbaum, who oversaw the trial, will determine the final sentence for each. Prosecutors and defense lawyers will submit papers arguing for tougher or lighter sentences.

Cedarbaum also has the power to allow Stewart or Bacanovic to spend part of their sentences in halfway houses, or in home confinement.

Both Stewart and the broker have vowed to appeal, but legal experts have predicted they will have a difficult time convincing the 2nd U.S. Circuit Court of Appeals to overturn their convictions.