Martha Stewart Guilty, All Counts

Martha Stewart leaves Manhattan federal court in New York Friday, March 5, 2004. Stewart was convicted Friday of obstructing justice and lying to the government about a superbly timed stock sale- a devastating verdict that probably means prison for the woman who epitomizes meticulous homemaking and gracious living.
A Manhattan jury found Martha Stewart guilty of all four counts in her stock fraud trial Friday, a verdict that likely means prison time for the woman who epitomizes meticulous homemaking and gracious living.

The jury of eight women and four men deliberated three days before convicting Stewart, 62, of obstructing justice and lying to the government about a superbly timed stock sale.

The charges carry up to 20 years in prison, but Stewart will probably get much less than that under federal sentencing guidelines.

"It's almost certain that Martha Stewart will spend some time at least in jail," said Legal Analyst Andrew Cohen. "Nowhere near the 20 years, probably not even five, but she'll have to get some jail time. The judge has to justify that. I imagine we'll get that this spring."

Her former stockbroker, Peter Bacanovic, 41, was convicted on all but one count against him, filing a false document.

"Maybe it's a victory for the little guys who lose money in the market because of these kinds of transactions," said juror Chappell Hartridge, of the Bronx.

In a statement released on her Web site, Stewart said: "I am obviously distressed by the jury's verdict but I continue to take comfort in knowing that I have done nothing wrong and that I have the enduring support of my family and friends."

She said she would appeal the verdict and vowed to "continue to fight to clear my name."

Stewart grimaced as each count against her was read. Her eyes appeared to widen slightly. Her daughter, Alexis Stewart, was in tears.

Stewart left the courtroom with a somber expression. She did not speak to anyone at the defense table before going to a holding room away from the media.

Stewart remained mum during the trial, too, opting not to take the witness stand to present her version of the events. Juror Hartridge said he had hoped to see Stewart testify.

"I would have liked to have heard from her," Hartridge said. "I would have loved to have heard the other side of the story."

One Stewart supporter on the courthouse steps clutched a neon-yellow sign reading, "FREE MARTHA," as other backers of the multimillionaire cheered.

Sentencing was set for June 17. Stewart and Bacanovic must report to a probation office within a week for processing.

Shares of Martha Stewart Living Omnimedia Inc. fell sharply after company founder and former CEO Stewart was convicted of obstruction of justice and lying to the government.

Martha Stewart Living stock dropped $3.17, or 23 percent, to $10.86 for the day. Trading was halted by the New York Stock Exchange prior to the verdict announcement, and resumed about a half-hour later.

The stock had a major run-up prior to the verdict as investors bet on whether she would be acquitted. Shares began rising at 2 p.m., when reports of a possible verdict were first aired on television. The NYSE halted trading at 3:02 p.m., with the stock up $2.24, or 16 percent, at $16.27. During the run-up, the stock hit its 52-week high of $17.

The identities of those brokers who participated in the run-up are not publicly available.

The charges centered on why Stewart dumped about $228,000 worth of ImClone Systems stock on Dec. 27, 2001, just a day before it was announced that the Food and Drug Administration had rejected ImClone's application for approval of a cancer drug, an announcement that sent ImClone's stock plummeting.

Stewart and Bacanovic claimed they had a standing agreement to sell when the price fell below $60. But the government contended that was a phony 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, who averted more than $51,000 in losses by selling when she did, was not charged with insider trading; instead, she and her broker were accused of lying about the transaction and altering records to support the alleged cover story.

With her conviction, the government may press to have her removed from the board of her company. She stepped down as chief executive after being indicted last summer but remains as chief creative officer.

The verdict jeopardizes the media empire that Stewart carefully built over the years in becoming the nation's premier homemaker — an image she put forth by way of magazines, TV programs and everything from cookie cutters and garlic presses to bedsheets and pillows. Marketing experts have said that the company is so closely tied to her name and face that the effect could be devastating.

Stewart was easily the most recognizable face in the government crackdown on corporate crime that began with the collapse of Enron in 2001. Stewart's supporters claim she was being targeted because of her celebrity status.

The government's star witness was Douglas Faneuil, a former Merrill Lynch & Co. assistant who said he passed the tip about Waksal to Stewart on orders from his boss, Bacanovic. Faneuil said when he told Bacanovic about a flurry of selling by the Waksal family that morning, Bacanovic blurted: "Oh my God, get Martha on the phone."

He also said Bacanovic pressured him to lie about the transaction.

Prosecutors further contended Bacanovic doctored a worksheet of Stewart's portfolio after the fact by making the notation "(at)60" next to her ImClone stock. A forensics expert with the Secret Service testified that the mark was made in a different ink.

In addition, Stewart's personal assistant testified that Stewart altered a computer log of a Dec. 27, 2001, message from Bacanovic, then immediately told her to restore the log to its original wording.

Also, a longtime Stewart friend, Mariana Pasternak, testified that Stewart confided that she had known the Waksals were selling. Pasternak said Stewart added: "Isn't it nice to have brokers who tell you those things?"

But Pasternak admitted on cross-examination that the remark may have been something she herself thought, not something Stewart said.

In closing arguments, prosecutor Michael Schachter said the story about the arrangement to sell ImClone at $60 was "phony," "silly" and "simply an after-the-fact cover story." He said Stewart and her broker "left behind a trail of evidence exposing the truth about Martha Stewart's sale and exposing the lies they would tell."

For its part, the defense tried to discredit Faneuil as an admitted drug user and a liar. When the scandal broke, he initially backed up his boss, but later pleaded guilty to a misdemeanor, saying he had received an extra week of vacation and a free airline ticket for keeping his mouth shut.

Stewart did not testify, and her lawyers called only one witness during a defense that lasted less than an hour.

In closing arguments, defense attorney Robert Morvillo said that the conspiracy as outlined by the government was too sloppy to be true. He urged the jury to let Stewart get back to "improving the quality of life for all of us."

"If you do that," he said, echoing Stewart's slogan, "it's a good thing."

Stewart could have faced even more prison time, but the judge threw out the most serious charge — a securities fraud count that alleged she deceived investors in her own company when she publicly declared her innocence in the scandal. The judge had referred to the charge as "novel."

At times, the trial seemed more fodder for gossip columns than the financial pages. Stewart's arrival each day was chronicled by a barrage of photographers and camera crews, with the tabloids taking careful note of her expensive handbags and stylish heels. Celebrities Rosie O'Donnell, Bill Cosby and Brian Dennehy all showed up in court in support of Stewart.

Stewart had a reputation before the trial as a ruthless businesswoman, and in court she was portrayed as rude, insulting, demanding and cheap. According to testimony, she once threatened to take her business elsewhere because she did not like her brokerage's telephone hold music.