Stewart convicted in stock-selling trial
By Erin McClam
NEW YORK Martha Stewart was convicted yesterday of obstructing justice and lying to the government about why she unloaded her ImClone stock just before the price plummeted a verdict that could send her to prison and cripple the homemaking empire built around her vision of gracious living.
Peter Bacanovic, center, Martha Stewart's former Merrill Lynch broker, was convicted of conspiracy, perjury, making a false statement and obstruction of justice. He was acquitted of making a false document.
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 in a sport utility vehicle as supporters shouted, "We love Martha!" She will remain free while she awaits sentencing June 17.
"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.
He and the three other men and eight women on the jury deliberated over three days before finding Stewart guilty on all charges: conspiracy, two counts of making false statements and obstruction of justice.
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 both Stewart and Bacanovic. The judge could potentially sentence the pair to time in a halfway house or home confinement, but legal experts have said the term would probably be reduced to roughly a year in prison under federal guidelines. Each charge carries a maximum sentence of five years and a $250,000 fine.
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 to review a cancer drug. The announcement sent ImClone's stock sharply lower. The drug eventually won government approval.
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 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.
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.
Stewart made herself into the nation's premier homemaker by way of magazines, TV programs and everything from cookie cutters and garlic presses to bed sheets and pillows. Marketing experts have said that the company is so closely tied to her name and face that the effect could be devastating.
"This is a terrible tragedy for a great brand," said Seth Siegel, co-founder of The Beanstalk Group, a trademark licensing agency.
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."
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 addition, Stewart's personal assistant testified 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 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.