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Martha Stewart Found Guilty; Prison Likely

She is the first major figure convicted at trial in a wave of financial scandals. A juror calls the verdict 'a victory for the little guys.'

March 06, 2004|Thomas S. Mulligan and Walter Hamilton | Times Staff Writers

NEW YORK — In a sweeping victory for the government, a federal jury Friday found Martha Stewart guilty of conspiracy, obstruction of justice and two counts of lying to investigators, a verdict that means the media entrepreneur almost certainly will serve prison time.

Stewart, 62, who built a business empire on her sense of style in food, decorating and entertaining, is the first major figure convicted by a jury in the wave of corporate scandals involving such now-notorious names as Enron Corp., WorldCom Inc., Tyco International Ltd. and Adelphia Communications Corp.

"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.

On its third day of deliberating, the jury of eight women and four men found that Stewart and her ex-stockbroker, Peter E. Bacanovic, hatched a plan to cover up a stock trade that Stewart made after getting an insider tip, then lied to investigators about it. Stewart was not charged with insider trading itself.

Bacanovic, 41, was convicted of conspiracy, perjury, obstruction and lying to investigators. He was acquitted of making a false document.

Both defendants vowed to appeal the verdicts. Sentencing was set for June 17.

Stewart's crimes each carry penalties of as much as five years in prison and $250,000 in fines. However, legal experts said that under federal sentencing guidelines, Stewart probably faces 10 to 16 months in prison, half of which could possibly be served in a halfway house or other non-prison setting.

The trial centered on Stewart's Dec. 27, 2001, sale of her 3,928 shares of ImClone Systems Inc., founded by Stewart's friend Samuel D. Waksal. Waksal, a man about town who once dated Stewart's daughter, is serving seven years in prison for insider trading, based on his and his family's attempts to dump their own ImClone holdings that day.

The stock sales by Stewart and the Waksals came one day before the Food and Drug Administration failed to approve ImClone's key cancer drug, a decision that sent the stock plummeting. Stewart's well-timed sale saved her around $50,000, authorities say.

At trial, Douglas Faneuil, Bacanovic's assistant, testified about how he was holding the fort at Merrill Lynch's Rockefeller Center office on Dec. 27 while his boss was on vacation in Florida. Faneuil said he was flooded by calls that morning from Waksal family members and representatives trying anxiously to sell large blocks of ImClone stock.

Faneuil said he conferred by cellphone with Bacanovic, who insisted that Faneuil contact Stewart -- herself on the way to a vacation in Mexico -- and let her know that the Waksals were selling and the stock was falling.

When Stewart called him back later that day, Faneuil testified, he told her about the Waksals, and she asked for the stock's price and then ordered him to sell all her shares.

Within days, the SEC had launched an investigation of Waksal that spilled over to Stewart. The jury found that over the next few months, she and Bacanovic concocted a story that they had a prior agreement to sell the stock if it fell to $60 -- as it did that day -- and repeatedly lied to investigators to cover their tracks.

Stewart came across in testimony as petty and irascible, once threatening to pull her investment portfolio away from Merrill Lynch because she didn't like the telephone "hold music."

In a "Dear Friends" letter posted on her "MarthaTalks" website shortly after the verdicts, 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 statement said.

The five-week trial, which involved high-stakes gambles by both the prosecution and defense, came to an end Friday just after 3 p.m. Eastern time, when U.S. District Judge Miriam Goldman Cedarbaum read aloud the verdicts. There was a collective gasp in the packed courtroom at the world "guilty" on count one, the conspiracy charge against Stewart.

Stewart leaned slightly against her lead defense lawyer, Robert G. Morvillo, as the litany of guilty verdicts continued, but her face remained tight and grim, as it had through much of the trial. Bacanovic, too, displayed little reaction to the verdicts.

Others showed more emotion. When Stewart's daughter, Alexis, turned to leave the courtroom, her face was drenched in tears.

A juror also had tears in her eyes as the verdict was read.

Stewart's conviction, coming within days of guilty pleas and indictments of high-ranking former executives of Enron and WorldCom, shows that judgment day finally is reaching the top of the executive ladder and that the government, after a slow start, may be gaining momentum in its campaign against financial corruption.

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