Martha To Do Some Living In Jail?

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.
AP
Martha Stewart's convictions on charges of obstructing justice and lying to the federal government about why she unloaded her stock in a biotech company just before its price plummeted could send her to prison and cripple the homemaking empire built around her vision of gracious living, observers say.

Her ex-stockbroker, Peter Bacanovic, also was found guilty in the stock scandal.

Stewart, 62, grimaced and her eyes widened slightly upon hearing the verdict, and she later released a statement maintaining her innocence and promising an appeal.

The woman who built a reputation as a steely perfectionist and a ruthless executive walked out of the courthouse stone-faced before being driven away as supporters shouted, "We love Martha!" She will remain free while she awaits sentencing June 17.

Maximum sentence for all of Stewart's charges together would be 20 years.

"It's almost certain that Martha Stewart will spend some time at least in jail," said CBSNews.com 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."

In deciding Stewart's sentence "the judge can consider the fact that had she has a clean record up to this point, her danger to society and so forth. It's going to be up to the discretion of the judge. We're going to finally know what she thinks of the case," says Cohen.

The jury deliberated over three days before finding Stewart guilty on all charges: conspiracy, making false statements and obstruction of justice.

"We gave the benefit of the doubt to the defense yes, but again, we combed through the testimony and documents and we felt otherwise," juror Chappell Hartridge told CBS News Correspondent Anthony Mason.

Bacanovic, 41, was convicted of conspiracy, perjury, making a false statement and obstruction of justice, but was acquitted of making a false document.

The charges carry up to 20 years in prison for Stewart and Bacanovic. Legal experts have said her sentence would probably be reduced to roughly a year in prison under federal guidelines.

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 federal regulators rejected ImClone's application for approval of a cancer drug. The announcement sent ImClone's stock sharply lower.

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 regulators' 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.

Stewart's business employs nearly 600 people and now has a figurehead who is a convicted felon.

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.

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.

She made herself into the United States' premier homemaker by way of magazines, TV programs and everything from cookie cutters and garlic presses to bedsheets and pillows. Martketing experts have said that the company is so closely tied to her name and face that the effect could be devastating.

Martha Stewart Omnimedia became a $900 million empire built on one woman's ability to do everything well, and some wonder if that is what really brought her down.

Playwright Wendy Wasserstein told CBS News Correspondent Mika Brzezinski she wonders if the verdict is -- at least in part -- punishment for doing everything too well.

"Martha's successful. Martha's basically telling you that she gardens and cooks better than you do," says Wasserstein. "You always want to see little Miss Perfect fail."

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

In a statement 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. "I will appeal the verdict and continue to fight to clear my name. I believe in the fairness of the judicial system and remain confident that I will ultimately prevail."

Stock in her company, Martha Stewart Living Omnimedia, shot up on word of a verdict, then trading was briefly halted. The stock plummeted after trading resumed. The stock closed down $3.17, or 23 percent, at $10.86.

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 that 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 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.

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.