Domestic diva guilty of shares fraud

US “domestic goddess” Martha Stewart has been convicted of obstructing justice and lying to the US government about why she unloaded her stock in a biotech company just before the price plummeted.

Last night’s verdict could send her to prison and cripple the homemaking empire built around her vision of gracious living.

Her ex-stockbroker, Peter Bacanovic, also was found guilty in the stock scandal.

Stewart, 62, grimaced and her eyes widened slightly upon hearing the verdict. She later released a statement maintaining her innocence and promising an appeal.

The woman who built a reputation as a steely perfectionist and a ruthless executive walked out of the New York courthouse stone-faced before being driven away as supporters shouted: ”We love Martha!” She will be sentenced on June 17.

The jury deliberated for three days before finding Stewart guilty on all charges: conspiracy, making false statements and obstruction of justice.

Bacanovic, 41, was convicted of conspiracy, perjury, making a false statement and obstruction of justice, but was cleared of making a false document.

The charges carry up to 20 years in prison for Stewart and Bacanovic. Legal experts have said Stewart’s sentence would probably be reduced to about a year in prison under government guidelines.

The charges centred on why Stewart dumped about $228,000 (€184,400) worth of ImClone Systems stock on December 27, 2001, just a day before it was announced that government regulators rejected ImClone’s application for approval of a cancer drug.

The announcement sent ImClone’s stock sharply lower.

Stewart and Bacanovic claimed they had a standing agreement to sell when the price fell below $60 (€48.50).

But the government contended that was a false cover story and that Stewart sold because she was tipped by her broker that ImClone chief executive Sam Waksal was frantically trying to dump his own holdings.

Waksal later admitted selling his stock based on advance word of the regulators’ decision. He is serving seven years in prison for insider trading.

Stewart, who averted more than €44,700 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.

Stewart was easily the most recognisable 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.

She made herself into the United States’ premier homemaker by way of magazines, TV programmes and everything from cookie cutters and garlic presses to bedsheets and pillows.

Martketing experts have said that the company is so closely tied to her name and face that the effect could be devastating.

The government now 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.

In a statement on her website, Stewart said: “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.”

Stock in her company, Martha Stewart Living Omnimedia, shot up on word of a verdict, then trading was briefly halted. The stock plummeted after trading resumed. The stock closed down $3.17 (€2.60), or 23%, at $10.86 (€8.80).

The government’s star witness was Douglas Faneuil, a former Merrill Lynch assistant who said he passed the tip about Waksal to Stewart on orders from his boss, Bacanovic.

Faneuil said that 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 argued that 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 closing arguments, prosecutor Michael Schachter said the story about the arrangement to sell ImClone at $60 (€48.50) was ”phoney”, “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.”

The defence 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 misdemeanour, saying he had received an extra week of holiday and a free airline ticket for keeping his mouth shut.

Stewart did not testify, and her lawyers called only one witness during a defence that lasted less than an hour.

In closing arguments, defence lawyer Robert Morvillo said that the conspiracy as outlined by the government was too sloppy to be true.

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.