Martha Stewart found guilty on all charges; vows to appeal

Jurors found lifestyle guru Martha Stewart guilty on Friday on all four counts in her stock trading case, but she quickly vowed to appeal the conviction.

In their third day of deliberations, the jury of eight women and four men found Stewart guilty on one charge of conspiracy, one charge of obstruction of justice and two charges of making false statements to investigators.

Stewart, 62, could face up to 20 years in prison, but U.S. sentencing guidelines could reduce that to about one year.

Stewart's former stockbroker, Peter Bacanovic, 41, was found guilty of conspiracy, perjury, making a false statement and obstruction of justice. He was acquitted of submitting a false document.

Sentencing is set for June 17.

Stewart vows appeal on web site

"I am obviously distressed by the jury's verdict but I continue to take comfort in knowing that I have done nothing wrong," Stewart said in a statement posted on her web site.

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"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," she said.

Shares drop after verdict

Shares of Martha Stewart Living Omnimedia (NYSE:MSO), which were halted half an hour before the verdict was read, dropped sharply after the company's founder was found guilty. The stock closed down more than 22 per cent, falling $3.17 US to $10.86 US. It was one of the most actively-traded issues on the NYSE.

Prior to the trading halt, shares of the company shot up as investors bet that Stewart would be acquitted. The stock got as high as $17 US, its 52-week high.

The conviction raises even more concerns about the future of the company. Martha Stewart Living this week posted a better-than-expected fourth-quarter profit, but warned of a first quarter loss because advertising revenue was down due to repercussions from Stewart's legal problems.

• FROM March 4, 2004: Martha Stewart's company posts Q4 profit

Stewart stepped down as chief executive officer of the company last summer, but she remains chief creative officer. The U.S. government may now move to remove her from the firm's board of directors.

Martha Stewart Living Omnimedia issued a statement saying it was "deeply saddened" by her conviction.

The company also said it was confident that its assets are more than sufficient to continue its development.

Case revolved around timing of sale of ImClone shares

The prosecution alleged that Stewart sold almost 4,000 shares of ImClone Systems on Dec. 27, 2001, after being tipped that former ImClone CEO Sam Waksal was trying to dump his own shares in the company. Waksal is a friend of Stewart.

Prosecutors said Stewart and Bacanovic then tried to cover up the reason for the trade.

Stewart maintained that she sold her stock because of a pre-existing arrangement with her broker to sell the shares if they fell below $60 US.

When Stewart sold her ImClone stock on that December day, she averted a loss of $51,000 US. When the U.S. Food and Drug Administration announced that an ImClone drug was not ready for approval, the shares plunged almost 20 per cent.

The drug was eventually approved.

Ironically, the fallout from the case has cost Stewart an estimated $200 million US of her fortune, as her stake in the company plunged along with the share price.

Key prosecution witness

The key witness for the prosecution was Douglas Faneuil, the former Merrill Lynch assistant who said Bacanovic ordered him to tip Stewart that Waksal was trying to sell his shares.

Faneuil testified he told Stewart by telephone on Dec. 27, 2001, that Waksal was trying to sell his shares in the firm.

Faneuil testified that he told Stewart that she "might want to act on the information that Sam's selling all of his shares."

"All of his shares?" Stewart asked, Faneuil told the court.

"What he does have here, he's trying to sell," Faneuil testified he replied to Stewart's question.

Faneuil said Stewart then told him to sell all of her almost 4,000 shares at the market price.

Most serious charge against Stewart dismissed

Stewart originally faced five charges before the judge dismissed a count of securities fraud on Feb. 27.

"Here, the evidence and inferences the government presents are simply too weak to support a finding beyond a reasonable doubt of criminal intent," the judge wrote.

The decision was not a complete surprise because Judge Miriam Goldman Cedarbaum had earlier called the prosecution's decision to lay the charge as "novel."

Under that charge, Stewart had been accused of deceiving investors in her company, Martha Stewart Living Omnimedia, by insisting that she sold her shares in ImClone because of the pre-existing arrangement to sell the shares if they fell below $60 US.