Martha Stewart, who built a media and consumer goods empire that brought gracious living into everyday Americans’ homes, faces prison after her conviction Friday on four felony counts related to a questionable stock sale.
Stewart’s former stockbroker and co-defendant, Peter Bacanovic, also was found guilty on charges related to her sale of nearly 4,000 shares in ImClone Systems Inc., a biotechnology company then headed by her friend Dr. Samuel D. Waksal. Stewart, appearing ashen and struggling to remain composed, left the federal courthouse in Manhattan about 30 minutes after U.S. District Judge Miriam Goldman Cedarbaum read out “guilty” eight times–four each for Stewart and Bacanovic. Under a drizzly and overcast sky, a crowd of supporters chanted, “We love you, Martha!” as Stewart stepped into a waiting car.
Moments earlier, U.S. Atty. David N. Kelley called the verdict a warning to corporate America. Coming two days after former WorldCom Inc. Chief Executive Bernard Ebbers was led into the same courthouse in handcuffs to be arraigned on charges including securities fraud, Stewart’s conviction marked another victory for a Justice Departmentthat has been accused of being slow to prosecute corporate criminals.
“If you are John Q. Public or Martha Stewart or Peter Bacanovic, we will go after you if you make these kind of lies,” Kelley said.
In response to a reporter who asked whether Stewart was prosecuted because she is a celebrity, Kelley said, “We don’t prosecute people for who they are.”
Deliberating for nearly three days, jurors found Stewart, 62, guilty of conspiracy, obstruction of justice and two counts of making false statements. Each count carries a potential prison term of five years and a $250,000 fine. But legal observers, citing federal sentencing guidelines, said Stewart probably would receive 15 to 21 months in prison. Her sentencing hearing is scheduled for June 17. Bacanovic, 41, was convicted of conspiracy, perjury, making a false statement and obstruction of justice. He was acquitted of one count of creating a false document. Lawyers for Stewart and Bacanovic said they would appeal the convictions.
In the 1990s, Stewart’s fame skyrocketed as she parlayed her skills as a decorating and lifestyle adviser into a multimillion-dollar media and merchandising company, Martha Stewart Living Omnimedia Inc. After her indictment in June 2003, Stewart resigned as chairman and chief executive of the firm.
Within hours of the verdict, Stewart posted a letter on her personal Web site, MarthaTalks.com.
“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,” she wrote.
By Friday evening, however, Stewart’s online statement had been edited to omit her denial of any wrongdoing. The federal sentencing guidelines ask judges to consider whether defendants have accepted responsibility for their actions. Throughout the six-week trial, prosecutors portrayed Stewart as a liar who conspired with her stockbroker to cover up that she had sold her ImClone stock in December 2001 after learning that Waksal and his two daughters were selling thousands of their own shares in the New York-based company.
Waksal later admitted selling his stock based on advance word that the U.S. Food and Drug Administration had rejected ImClone’s application to review an anti-cancer drug. When that news became public, ImClone’s shares plummeted. Waksal was convicted last year of insider trading. He is serving a 7-year sentence in a federal prison in Pennsylvania.
But Stewart’s defense lawyers argued that she sold her ImClone shares under an earlier agreement with her broker to unload the stock if its price fell below $60 a share. The jury of eight men and four women did not believe it. One juror, Chappell Hartridge, a 47-year-old computer technician, told reporters the testimony of Stewart’s assistant, Anne Armstrong, ultimately convinced the jury that Stewart made her trade based on information about the Waksals selling their shares.
“Armstrong’s testimony was the real turning point,” Hartridge said.
Pressed by reporters about whether the jury saw Stewart as arrogant, Hartridge said: “I don’t like judging people. But I would have to say yes.”
Calling a variety of witnesses who worked for Stewart’s company and in Bacanovic’s Merrill Lynch & Co. office, prosecutors charged that Stewart learned about the Waksals’ selling through conversations with Bacanovic’s assistant, Douglas Faneuil.
In a sworn statement, Stewart told federal investigators on Feb. 4, 2002, that “she did not know” whether Bacanovic had left a phone message at her office the day of the ImClone stock sale.
Yet, a teary Armstrong testified that five days before that interview, Stewart had altered a computer phone log, replacing a message that read “Peter Bacanovic thinks ImClone is going to start trading downward” to “Peter Bacanovic re ImClone.”
Stewart, Armstrong said, later ordered her to change the message back to its original state. But according to prosecutors, the damage had been done: Stewart had made a false statement to government investigators and, in the process, obstructed justice.
“The fact that she was convicted on everything means the jury understood the charges very well, because the truth is all of these crimes were completely interrelated and came out of the same conduct,” said Jennifer Arlen, a professor at New York University‘s School of Law.
At Stewart’s sentencing, the judge is likely to apply federal guidelines for the most serious crime for which Stewart was convicted, obstruction of justice, said Jonathan Bunge, a litigation partner at Kirkland & Ellis in Chicago and a former federal prosecutor. Unless the government can demonstrate “substantial interference,” Bunge said, Cedarbaum probably will sentence Stewart to between 15 and 21 months in prison. While Stewart plans to appeal her conviction, she also faces a civil suit brought by the Securities and Exchange Commission alleging insider trading.
Shopping on Chicago’s Michigan Avenue, Myrna Olszewski, 65, said she felt bad for Stewart. “I always watched her show because she gave such good tips,” said Olszewski, who was visiting from Pittsburgh. Her friend, Kay Clendaniel, 61, said: “Sometimes people get too powerful and it catches up with them. This was just greedy, that’s all. How much money do you really need?”