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Martha Stewart gets five months in prison

Saturday, July 17, 2004

NEW YORK -- An emotional Martha Stewart was sentenced Friday to five months in prison for obstructing a federal securities investigation, then marched outside the courthouse to declare that "a small personal matter" had been blown out of proportion and urge supporters to stick with her company's products.

The multimillionaire businesswoman, who must also serve five months in home confinement and two years under supervision by the probation office, got the lightest sentence available within federal guidelines. Her former broker Peter Bacanovic, who was convicted with her in March of obstruction, conspiracy and lying to federal investigators, received the same terms of confinement in a separate proceeding later in the day. Stewart must pay a $30,000 fine and Bacanovic $4,000.

U.S. District Judge Miriam Goldman Cedarbaum said both Stewart, 62, and Bacanovic, 42, can remain free on bond while they appeal their convictions, a process that could take a year or more. The share price of Martha Stewart Living Omnimedia Inc., shot up 37 percent on Friday's news, but remains well below where it was before the news broke that her December 2001 sale of ImClone Systems Inc. stock was under investigation.

Stewart, who built a home catering business into a multimedia empire and became the country's premier determiner of domestic style, was a study in contrasts as she broke two years of nearly total silence about the scandal.

In the courtroom, she told the judge in a shaking voice: "Today is a shameful day. It is shameful for me, for my family, and for my beloved company and all of its employees and partners. What was a small personal matter became over the last two and a half years an almost fatal circus event of unprecedented proportions spreading like oil over a vast landscape. ... I have been choked and almost suffocated to death."

She then asked the judge to "remember all the good that I have done, all the contributions I have made. ... My hopes that my life will not be completely destroyed lie entirely in your competent and experienced and merciful hands."

But after exiting the courthouse to cheers of "We love you Martha" from two dozen supporters, Stewart took a far more defiant tone, even as she repeated much of the same statement.

Saying more than 200 people lost jobs at her company "as a result of this situation," Stewart said: "I want them to know how very, very sorry I am for them and their families."

She thanked the 170,000 people who she said have written to her personal defense Web site -- marthatalks.com -- and urged them to help the company by subscribing to her magazines, lobbying the advertisers and buying her products.

"I don't want to use this as a sales pitch for my company, but we love that company, we've worked so hard ... and we really think it merits great attention from the American public," she said.

Stewart then promised, "I will be back." Stewart has asked to serve her prison time in Danbury, Conn., and home confinement in Bedford, N.Y.

Stewart's case has been one of the highest profile and most hotly debated white-collar crime cases ever since news of the insider trading investigation became public in June 2002. Her supporters said she was unfairly singled out because of her celebrity and because of bias against female executives. Prosecutors said they brought the case because no one could be allowed to interfere with a federal investigation.

Assistant U.S. Attorney Karen Patton Seymour echoed that view at Friday's hearing, when she urged Cedarbaum not to make a special exception for Stewart, as defense lawyers had asked, and go below the recommended minimum sentence.

"This is a serious offense and it has broad implications for the administration of justice," Seymour said. "The sentence should also reflect the even-handedness of our criminal justice system."

During the five-week trial, prosecutors contended that Stewart unloaded 3,928 ImClone shares because Bacanovic's assistant Douglas Faneuil improperly tipped her that the company's founder Samuel Waksal was trying to dump his stock. Bacanovic and Stewart told investigators that they had previously arranged to sell the stock if the price fell below $60, which it did on the day she sold.

Faneuil eventually pleaded guilty to a misdemeanor and became the government's star witness. He is scheduled to be sentenced next week.

The trial shed a deeply unflattering light on Stewart, who was described by witnesses as rude to subordinates and penny-pinching to the point of trying to bill her company for haircuts and weekend trips.

Her attorney, Robert Morvillo, referred to the negative publicity as he asked Cedarbaum to grant his client probation.

During home confinement, Stewart will be allowed to go to work and other approved activities for up to 48 hours a week. She must spend at least one entire day a week at home. The judge said she would consult with the probation office about Stewart's request that she not be required to wear an electronic monitoring bracelet during home confinement.

"Lying to government agencies during the course of an investigation is a very serious matter," the judge said as she sentenced each defendant. "A term of incarceration is justified and appropriate in this case." Cedarbaum added that she was imposing the minimum guidelines sentence because neither had a prior record and both had done much good for other people.

"The public interest objective in this prosecution has been served by the jury verdict," the judge said. "You have suffered and will continue to suffer enough."

Outside the courthouse, Stewart's appeals lawyer Walter Dellinger outlined what he said were five promising avenues for Stewart's appeal.

Among them: the allegation that one juror lied on his jury questionnaire and was biased against Stewart, the recent arrest of a government ink expert on charges he lied during the trial, Cedarbaum's refusal to allow Morvillo to argue that Stewart was not guilty of insider trading and therefore had no reason to obstruct the investigation, and the claim that the jury's verdict was tainted by hearing the evidence connected to a securities fraud count that Cedarbaum dismissed right before closing arguments.


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