- The Washington Times - Friday, March 5, 2004

NEW YORK — Martha Stewart was convicted yesterday of obstructing justice and lying to the government about a well-timed stock sale — a devastating verdict that probably means prison for the woman who epitomizes meticulous homemaking and gracious living.

A jury of eight women and four men deliberated three days before convicting Stewart of all counts against her: conspiracy, making false statements and obstruction of justice.

Her former stockbroker, Peter Bacanovic, 41, was convicted on four counts including obstructing justice and perjury. He was acquitted of one count of falsifying a document.

The charges against Stewart carry up to 20 years in prison, but legal experts have said her sentence probably would be reduced to roughly a year in prison under federal guidelines. Sentencing was set for June 17.

Stewart, 62, grimaced as each count against her was read, her eyes widening slightly. Her daughter, Alexis Stewart, was in tears.

“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.

Attorneys for Stewart and Bacanovic said they would appeal.

“I believe in the fairness of the judicial system and remain confident that I will ultimately prevail,” Stewart said in a statement, predicting that she would be “completely exonerated.”

Stewart attorney Robert Morvillo said he viewed the trial as just the first round.

“Once we have our day in the Court of Appeals, the conviction will be reversed and Martha Stewart will ultimately be determined not to have done anything wrong,” he said.

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, television programs and everything from cookie cutters and garlic presses to bed sheets and pillows.

Stock in her company, Martha Stewart Living Omnimedia, fell nearly 23 percent to $10.86 after the verdict.

Stewart did not testify at the trial, and her defense put on just one witness — a gamble that jurors would decide the government had not met its burden of proof.

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

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

Stewart and Bacanovic said they had a standing agreement to sell when the price fell below $60. The government said their explanation was a cover story and that Stewart sold because she was tipped by her broker that ImClone Chief Executive Sam Waksal was 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 cover story.

U.S. Attorney David Kelley said yesterday that all Americans were victims of Stewart and Bacanovic’s crimes because lies to investigators weaken the nation’s law-enforcement system.

“When we first indicted this case, we said it was about lies, all about lies,” Mr. Kelley said. “As you saw in the evidence, that’s what it was.”

The reading of the verdict took less than two minutes. U.S. District Judge Miriam Goldman Cedarbaum polled each juror individually to make sure they all agreed on the verdict.

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. Mr. 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.

Mr. Hartridge, the juror, said the jury first agreed that Stewart was guilty on all counts, then decided the charges against Bacanovic.

He said Mr. Faneuil’s testimony was important, and cited two other witnesses as critical: Ann Armstrong, Stewart’s assistant, who said Stewart altered a phone message from Bacanovic; and Mariana Pasternak, a longtime Stewart friend, who said Stewart confided to her days after the ImClone sale that she knew Waksal was trying to sell.

At the trial, Miss Pasternak testified Stewart added: “Isn’t it nice to have brokers who tell you those things?”

Stewart left court without speaking as dozens of supporters outside the courthouse cheered and chanted, “We love Martha.” She and Bacanovic must report to a probation office within a week for processing.

Prosecutors and defense lawyers will be allowed to make submissions arguing for heavier or lighter prison time for the two. The judge will decide — and could choose to let them serve some time in a halfway house or confined to their homes.

With her conviction, the government 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 chief creative officer.

Stewart also could face up to $1 million in penalties for the criminal convictions, plus fines the Securities and Exchange Commission may seek.

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