Martha Stewart Found Guilty on All Counts

Home improvement guru and media mogul Martha Stewart was found guilty Friday of charges that she obstructed the investigation into her 2001 sale of nearly 4,000 shares of ImClone, a close friend’s company, just before the stock plummeted in value.

Stewart was found guilty of conspiracy to obstruct justice, obstruction of justice and two counts of making false statements.

Stewart’s broker, Peter Bacanovic, who worked for Merrill Lynch at the time of the 2001 stock sale, was found guilty on four of the five counts against him. He was acquitted on a charge of making and using false documents but was convicted of perjury, obstruction of justice and making false statements.

During a five-week trial, government prosecutors claimed Stewart lied to investigators to cover up the fact that she sold the shares of ImClone, a biotech company owned by her longtime friend Sam Waksal, just before the U.S. Food & Drug Administration blocked approval of one of the company’s drugs. Waksal pleaded guilty to securities fraud and is serving a seven-year prison sentence.

Prison Stripes?

The judge in the case scheduled sentencing for both Stewart and Bacanovic for June 10th. All told, the charges against Stewart carry a maximum penalty of 20 years in prison and US$1 million in fines, while Bacanovic faces a maximum of 25 years in prison.

Stewart posted a statement to a Web site dedicated to her defense, saying she will appeal the case and will keep fighting to clear her name.

“I am obviously distressed by the jury’s verdict, but I continue to take comfort in knowing that I have done nothing wrong,” the statement said.

All Eyes on Stewart

The verdicts were announced around 3 p.m. Eastern time Friday. By that time, trading in shares of Stewart’s company, Martha Stewart Omnimedia (MSO), had been halted by the New York Stock Exchange. When trading resumed, the stock plunged more than 20 percent, giving up gains it had made earlier in the day. Shares of retailer Kmart, which has closely tied itself to the Stewart brand, also fell.

MSO issued a statement saying the company is “deeply saddened” by the verdict and noting that its board of directors will meet soon to discuss “the current situation and take actions as appropriate.”

Throughout the months leading up to the trial and the weeks of testimony, the case has been the subject of swirling controversy, with the dynamic personality of Stewart in the spotlight.

A former Wall Street broker, Stewart built her home decor business into a multibillion-dollar conglomerate that rode the dot-com wave, adding a major Web component to its business in the late 1990s. MSO went public in October 1999, with Bacanovic helping to oversee the offering for Merrill. The MSO offering was one of dozens rolled into a class-action lawsuit settlement last year aimed at repaying some shareholders who bought into high-flying IPOs around that time.

Unfairly Singled Out?

While some of Stewart’s supporters criticized prosecutors for targeting her amid much larger scandals, Vanderbilt University Law School professor Larry Soderquist said the U.S. government usually takes a no-holds-barred approach to prosecuting insider trading.

“The markets only work if the public believes they have the same access and opportunity as everyone else,” Soderquist told the E-Commerce Times. “If that confidence fails, the markets cannot continue to function.”

The verdict underscores the evidence presented during the five-week trial, including testimony from Bacanovic’s assistant and a former assistant and close friend of Martha Stewart.

“Proving insider trading is very difficult, which is one of the reasons the government focused on what happened after the fact in this case,” Soderquistadded. “But the message is the same: If you trade on inside information, we will do everything we can to make sure you go to jail.”