The Martha Stewart verdict signals a stunning fall from grace for one of the most successful women in American business. Not only was she the founder of a New York Stock Exchange company, she was its public face and chief spokeswoman, with a celebrity burnished on magazine covers, in books and on television shows, all labeled with the Martha Stewart name. Her fortune once was valued at more than $1 billion and remains in the $335 million range–at least for the moment.
Stewart, the domestic diva and founder of Martha Stewart Living Omnimedia, was found guilty yesterday on all four counts in her obstruction of justice trial. Her co-defendant and stockbroker, Peter Bacanovic, was also found guilty on four counts out of five.
Said Stewart in an open letter posted on the Internet: “I am obviously distressed by the jury’s verdict, but I continue to take comfort in knowing that I have the confidence and 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.” She had no additional comment at the courthouse.
Sentencing has been set for June 17. The maximum prison term on each count is five years, but Stewart will likely serve far less.
Federal sentencing experts predict that Stewart most likely will receive a sentence of slightly less than one year, with about half of that time to be served in prison and the balance in a halfway house, home detention or on parole. Industry analysts say Martha Stewart Living may not be able to survive the conviction as a going concern, but they note that it has roughly $3.50 a share in cash and that the company has already taken steps to reposition the brand. The company’s shares closed Friday at $10.86, down $3.17 or 22.6%.
As Stewart herself has already sold at least $45 million of her company’s shares, she will remain in all likelihood a very wealthy woman. Whether Stewart, who resigned as chief executive officer before the trial, will be able to run the company with a felony conviction on her record is very much in doubt. The U.S. Securities and Exchange Commission treats non-securities fraud convictions on a case-by-case basis. She will also face civil lawsuits based on the conviction.
As for the company, it says it has contingency plans. But MSO has “no other source of brand equity,” says Paul Argenti, professor of management and corporate communication at the Tuck School of Business at Dartmouth, who faulted the company for not diversifying its image well before the trial the way Ralph Lauren has. “I can’t believe things would go on their merry way,” he said, adding that a guilty verdict will be “devastating.”
The jury’s verdict ends a trial that started on Jan. 27 and an investigation that ran more than two years (see “How Martha Ended Up In Court”).
Juror Chappell Hartridge, 47, a computer technician from the Bronx, said in response to whether reaching a decision was hard: “Absolutely. We’re talking about two human beings whose lives are going to be changed forever.” He added that the conviction of Stewart was not a close call, but that the hardest aspect of the case was the perjury charge against Bacanovic because perjury has special evidentiary rules. Hartridge said he was a little disappointed that Stewart didn’t testify, but he also didn’t expect her to do so.
Stewart and Bacanovic had been indicted in June 2003 on nine counts of obstruction of justice and related charges stemming from an investigation of the circumstances of her sale of ImClone Systems shares on Dec. 27, 2001. Stewart had also been charged with defrauding investors in her own company. The securities fraud count, which carried the harshest sentence of all the charges, was dismissed by U.S. District Judge Miriam Cedarbaum at the end of the trial.