March 5, 2004
NEW YORK - Martha Stewart was convicted Friday of obstructing justice and lying to the government about a superbly timed stock sale, a devastating verdict that probably means prison for the woman who epitomizes meticulous homemaking and gracious living. In a statement, Stewart said she would appeal the verdict.
The jury of eight women and four men deliberated three days before convicting Stewart on all four counts brought against her. The charges carry up to 20 years in prison, but Stewart will almost certainly get much less than that under federal sentencing guidelines.
Her former stockbroker, Peter Bacanovic, 41, was convicted on all but one count against him, filing a false document.
Stewart, 62, grimaced as each count against her was read. Her eyes appeared to widen slightly. Her daughter, Alexis Stewart, was in tears.
MARTHA STEWART'S STATEMENT
Dear Friends:
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.
I can’t tell you how much I appreciate all the words of encouragement I have received from thousands of supporters. It is your continued support that will keep me going until I am completely exonerated.
Sincerely,
Martha Stewart
Sentencing was set for June 17.
Stewart left the courtroom with a somber expression. She did not speak to anyone at the defense table before going to a holding room away from the media.
She and Bacanovic must report to a probation office within a week for processing.
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 for approval of a cancer drug, an announcement that sent ImClone’s stock plummeting.
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 that Stewart sold because she was tipped by her broker that ImClone CEO Sam Waksal was frantically trying to dump his own holdings.
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.
CHARGES IN STEWART CASE
Here are the government’s charges against Martha Stewart and former stockbroker Peter Bacanovic:
MARTHA STEWART
• Conspiracy
GUILTY — Alleges Stewart and Bacanovic "willfully and knowingly" worked together to obstruct justice and make false statements in the stock-trading scandal.
• False statements
GUILTY — Alleges, among other things, that Stewart lied when she told the Securities and Exchange Commission, the FBI and federal prosecutors she had prearranged with Bacanovic to sell ImClone when it fell below $60.
GUILTY — Alleges, among other things, that Stewart lied when she told the SEC, the FBI and prosecutors that she did not recall being told on Dec. 27, 2001, that the family of ImClone Systems founder Sam Waksal was selling stock.
• Obstruction of justice
GUILTY — Alleges that, from January to April 2002, Stewart "willfully and knowingly" tried to hamper the SEC investigation of her stock sale by providing misleading information.
• Securities fraud
GUILTY — Judge Miriam Goldman Cedarbaum dismissed this charge Friday, Feb. 27. Prosecutors had alleged Stewart knowingly made misleading remarks to prop up the stock of her company, Martha Stewart Living Omnimedia.
PETER BACANOVIC
• Conspiracy
GUILTY — Alleges Stewart and Bacanovic "willfully and knowingly" worked together to obstruct justice and make false statements in the stock-trading scandal.
• False statements
GUILTY — Alleges Bacanovic lied when he told regulators he had had a conversation with Stewart in which she decided to sell ImClone when it reached $60 per share. Also alleges he lied about a Dec. 27, 2001, conversation in which he told Stewart the stock price had dropped.
• Making and using false documents
NOT GUILTY — Alleges Bacanovic altered a worksheet of Stewart's portfolio to make it appear he and Stewart had prearranged to sell ImClone when it fell below $60.
• Perjury
GUILTY — Alleges Bacanovic lied repeatedly in a Feb. 13, 2002, interview with SEC investigators, particularly about his conversations with Stewart in the weeks surrounding her sale of ImClone stock.
• Obstruction of justice
GUILTY — Alleges that, from January to April 2002, Bacanovic "willfully and knowingly" tried to hamper the SEC investigation of Stewart's stock sale.
PENALTIES
The maximum penalty for each count is five years in prison and a $250,000 fine. If convicted, both are likely to get far lighter penalties than the maximum under federal sentencing guidelines.
Source: The Associated Press
With her conviction, the government may press to have her removed from the board of her company. She stepped down as chief executive after being indicted last summer but remains as chief creative officer.
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, TV programs and everything from cookie cutters and garlic presses to bedsheets and pillows. Marketing experts have said that the company is so closely tied to her name and face that the effect could be devastating.
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.
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 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 that 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 that 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?”
KEY PLAYERS IN THE MARTHA CASE
• Martha Stewart
The guru of domestic style and gracious living who was convicted of obstruction of justice and lying to the government about her sale of 4,000 shares of ImClone Systems Inc. on Dec. 27, 2001 — the day before bad news on an ImClone drug from government regulators sent the stock price tumbling. Stewart resigned as chairman and CEO of her media empire in June. A judge had previously tossed out a more serious charge of securities fraud against Stewart.
Stewart’s former broker at Merrill Lynch who was convicted of conspiracy, obstruction of justice and lying about Stewart’s sales.
• Peter Bacanovic
Bacanovic had claimed that he and Stewart agreed in early December 2001 to sell ImClone shares if the stock price fell below $60 per share. He was acquitted on a fifth charge, making a false statement.
• Samuel Waksal
Founder of ImClone and longtime friend of Stewart who pleaded guilty to six criminal counts in the ImClone scandal, and admitted tipping off his daughter Aliza to sell ImClone stock before it plummeted on the bad news. Waksal also admitted dodging more than $1 million on sales tax on nine paintings he bought from an art gallery. He is serving a sentence of more than seven years.
• Douglas Faneuil
Former assistant to Bacanovic at Merrill Lynch who told investigators Bacanovic ordered him to tell Stewart that Waksal was selling his shares. Faneuil pleaded guilty last year to a misdemeanor charge of accepting gifts to keep quiet about Stewart’s stock sale. He was a key witness against Stewart and Bacanovic and has not been sentenced.
Source: The Associated Press
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.”
TIMELINE — THE MARTHA STEWART SCANDAL
Oct. 31, 2001 ImClone Systems asks the government to review Erbitux, its new cancer drug.
Dec. 26 ImClone founder Sam Waksal is tipped that the government will reject the Erbitux application, then tips his daughter to sell her ImClone stock and tries to sell his own.
Dec. 27 Stewart sells all 3,928 shares of her ImClone stock. The government later contends she was tipped that Waksal was trying to sell his shares.
Dec. 28 The Food and Drug Administration makes its decision public. On Dec. 31, the first trading day after the news, ImClone drops 18 percent.
Jan. 7, 2002 Stewart’s broker, Peter Bacanovic, tells Securities and Exchange Commission attorneys that he and Stewart had agreed on Dec. 20, 2001, to sell ImClone if it fell below $60.
Feb. 4 Stewart gives the SEC, federal prosecutors and the FBI the same information about the $60 stop-loss order.
June 12 Waksal is arrested and charged with insider trading. Stewart issues a statement repeating her assertion that she had a $60 stop-loss order.
June 18 Stewart insists she is “fully” cooperating with authorities.
Oct. 2 Former Merrill Lynch & Co. assistant Douglas Faneuil pleads guilty to taking a payoff to keep quiet about the Stewart stock trade.
Oct. 15 Waksal admits tipping his daughter to sell ImClone ahead of the government decision and trying to sell his own shares.
June 4, 2003 Stewart and Bacanovic are indicted on nine federal counts. Both plead innocent. Stewart resigns as chairwoman and CEO of her company but remains chief creative officer and a board member.
June 5 Stewart unveils a personal Web site in which she proclaims her innocence and insists she will fight to clear her name.
June 10 Waksal is sentenced to more than seven years in prison.
Nov. 7 Stewart tells ABC News she is scared of prison but “I don’t think I will be going to prison, though.”
Nov. 18 U.S. District Judge Miriam Goldman Cedarbaum refuses Stewart’s request to toss out two of the five charges against her, including a securities fraud count.
Jan. 6, 2004 Potential jurors fill out a questionnaire that reportedly asks whether they have visited Stewart’s Web site or cooked with her recipes.
Jan. 20 Stewart and Bacanovic arrive for juror questioning in their trial.
Jan. 26 Jury of eight women and four men is selected.
Jan. 27 Prosecutor claims in opening statements that Stewart sold ImClone stock based on a “secret tip,” then lied to cover it up. Stewart’s attorney compares case with the George Orwell novel “1984.”
Jan. 29 Judge criticizes prosecutors for withholding a 2003 FBI report that may damage prosecution’s case.
Feb. 3 - 4 Faneuil testifies that Bacanovic ordered him to tell Stewart that Waksal was selling stock. Faneuil claims Bacanovic pressured him repeatedly to cover it up.
Feb. 10 Stewart assistant Ann Armstrong testifies Stewart personally altered the log of a message Bacanovic left on the day she sold ImClone. But Armstrong says Stewart ordered the message changed back and never asked her to lie.
Feb. 19 Expert testifies that the ink Bacanovic used on worksheet of Stewart’s portfolio to make an “(at)60” notation next to ImClone is different from other inks on the document. Stewart friend Mariana Pasternak says Stewart told her days after the ImClone sale that she knew about Waksal selling, and says Stewart added: “Isn’t it nice to have brokers who tell you those things?”
Feb. 20 Under cross-examination, Pasternak backtracks on “Isn’t it nice” remark, saying it could have been something she herself thought. Government rests its case.
Feb. 23 Jeremiah Gutman, former Faneuil lawyer called as witness for Bacanovic, instead backs up Faneuil testimony. Defense ink expert says “(at)60” ink may match ink from a dash mark elsewhere on the worksheet. Heidi DeLuca, a Stewart business manager, says she recalls Bacanovic discussing plans to sell Stewart’s ImClone shares at $60.
Feb. 25 Stewart lawyers call just one witness — a lawyer whose notes raise question about what questions Stewart was asked in interviews with the government. Government plays tape of Bacanovic saying he never discussed $60 plan with DeLuca.
Feb. 27 Judge throws out securities fraud count against Stewart.
March 3 Jury begins its deliberations.
March 5 Martha Stewart is convicted on all charges; Peter Bacanovic is found guilty on charges including conspiracy, obstruction and perjury.
Source: The Associated Press
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. The judge had referred to the charge as “novel.”
At times, the trial seemed more fodder for gossip columns than the financial pages. Stewart’s arrival each day was chronicled by a barrage of photographers and camera crews, with the tabloids taking careful note of her expensive handbags and stylish heels. Celebrities Rosie O’Donnell, Bill Cosby and Brian Dennehy all showed up in court in support of Stewart.
Stewart had a reputation before the trial as a ruthless businesswoman, and in court she was portrayed as rude, insulting, demanding and cheap. According to testimony, she once threatened to take her business elsewhere because she did not like her brokerage’s telephone hold music.
http://www.msnbc.msn.com/id/4429271/