Published July 17, 2004
NEW YORK – Homemaking mogul Martha Stewart (search) and her ex-broker Peter Bacanovic (search) were sentenced separately Friday to five months in federal prison and five months of house arrest for lying about a stock sale.
During her morning sentencing in federal court in New York City, Stewart, 62, also got two years probation and was ordered to pay a $30,000 fine.
Neither Stewart nor Bacanovic, 42, were sent to jail Friday because their lawyers were appealing the sentences.
Bacanovic, who was sentenced Friday afternoon, also got two years probation but only a $4,000 fine.
"Today is a shameful day. It's shameful for me and for my family and for my beloved company and for all of its employees and partners," Stewart told reporters on the steps of the courthouse, echoing statements she'd made moments earlier to the judge.
"I have been choked and almost suffocated to death" during this process, said the woman dubbed the "domestic diva" because of the vast home-and-living empire she built.
Shares of the company, Martha Stewart Living Omnimedia Inc. (MSO), which have lost half their value in the two years since the scandal broke, soared upon news of her sentence.
In afternoon trading, the shares were up $3.63, or 42 percent, at $12.27 on the New York Stock Exchange.
Kmart Holding Co. reiterated its loyalty to Martha Stewart's company Friday.
"Martha Stewart Living Omnimedia is a valued brand partner of Kmart," the Troy-based retailer said. "We look forward to continuing our mutually beneficial and successful relationship with MSLO."
Kmart, which has exclusive rights to the Martha Stewart Everyday brand in housewares and other products, said it could not comment on the details of the case or sentencing, calling it "a personal matter."
Stewart was convicted in March on charges she lied to federal prosecutors about the reason and circumstances surrounding her well-timed sale of stock in ImClone Systems Inc. (IMCL) in December 2001, a day before the company announced negative news that sent stocks plummeting.
Stewart was found guilty of conspiracy, making false statements and obstruction of justice. It could be one to two years before all her appeals are exhausted.
Former Merrill Lynch & Co. (MER) stockbroker Bacanovic was convicted in March along with Stewart of lying about the sale. He was found guilty of conspiracy, perjury, making a false statement and obstruction of justice, but was acquitted of the charge of making a false document.
Stewart said she was more worried about how the conviction had affected other people, namely the 200-plus employees in her company who lost their jobs, than she was about herself.
"I want them to know how very, very sorry I am for them and their families," Stewart told reporters.
She also urged people to subscribe to her magazine and buy her products, though she added she didn't want to turn the impromptu news conference into a sales pitch.
"We love that company," she said.
Stewart and Bacanovic could both have received 10 to 16 months behind bars based on federal sentencing guidelines.
"I'll be back. I will be back. ... I hope the months go by quickly," Stewart said. "I'm not afraid. I'm not afraid whatsoever. I'm just very, very sorry it's come to this, that a small personal matter could be blown out of all proportion and with such venom, such gore."
The U.S. Bureau of Prisons will ultimately determine where Stewart does her time, most likely a minimum-security women's facility in Danbury, Conn., or Alderson, W.Va.
U.S. District Judge Miriam Goldman Cedarbaum (search), who presided over the case and handed down the sentence, recommended the prison in Danbury, Conn., for Stewart.
"I believe you have suffered and will continue to suffer," Cedarbaum told Stewart in court.
If the sentence is upheld, Stewart will be under house arrest at her estate in Bedford, N.Y. The judge said she'd consider waiving the typical requirement that a detainee wear an electronic monitoring device.
Cedarbaum rejected a defense request to send Stewart to a halfway house for the first five months, noting that "lying to government agencies during the course of an investigation is a very serious matter."
Prosecutor Karen Patton Seymour had argued for a heavier sentence.
"Ms. Stewart is asking for leniency far beyond what ordinary people who are convicted of these crimes would receive under the sentencing guidelines," she said.
Stewart resigned as CEO of Martha Stewart Living Omnimedia, once a $1 billion media empire, when she was indicted in 2003. She gave up her seat on the board after she was convicted, but remains founding editorial director.
The company issued a statement Friday afternoon.
"Martha Stewart Living Omnimedia is saddened for Martha. As always, she has our full support," the statement read in part. "We continue to manage the company for the long-term, with a commitment to preserving our many assets and brand labels and evolving MSO as a 'how-to' brand building enterprise."
Stewart's fans didn't show signs of abandoning their queen in the weeks leading up to sentencing day.
Hundreds of well-wishers rushed to her defense for lying about the 2001 stock sale, flooding a federal judge with about 1,500 letters asking for mercy in the final weeks before she learned her fate.
"I am alone now with my pets," a woman named Ruth Ritter wrote to the judge in careful script. "Just seeing Martha doing her crafts, cooking, gardening, was a great comfort to me."
From Springfield, Ohio, four middle-school cooks and a custodian sent a letter to Cedarbaum asking for a light sentence.
"Martha Stewart has been an inspiration for women across the nation," they wrote. "A hardworking, delightful character that shares her creative ideas with everyday people like us."
Stewart herself wrote a private note to the judge asking for leniency.
About 250 letters were sent to the judge on Bacanovic's behalf.
Cedarbaum had the option of allowing Stewart and Bacanovic to spend half their sentences at halfway houses or confined to their homes — or of giving them no prison time at all.
Sentencing for Stewart began about 10 a.m. Friday at a federal courthouse in lower Manhattan.
Bacanovic, who unsuccessfully sought to be tried separately from Stewart, was sentenced at 3:15 p.m.
Some see her conviction as an opportunity to teach other executives to learn from her mistakes.
"Better than prison for her would be the speaking circuit," Barry Minkow, who served 7½ years in prison for a massive Wall Street scam operation in the 1980s, told FOX News Friday. "She could save the American investing public billions of dollars by looking (CEOs and CFOs) in the eye and saying, 'Do the right thing. I didn't.'"
It was Dec. 27, 2001, when Stewart, in a brief phone call from a Texas tarmac on her way to a Mexican vacation, sold 3,928 shares of ImClone, a biotech company run by her longtime friend Sam Waksal (search).
Prosecutors alleged that Bacanovic ordered his assistant to tip Stewart that Waksal was trying to sell his shares. The next day, ImClone announced the Food and Drug Administration had rejected its application for approval of the cancer drug Erbitux — news that sent the stock plunging and saved Stewart $51,000.
Stewart and Bacanovic always maintained she sold because of a preset plan to unload the stock when it fell to $60. ImClone now trades around $80.
The star witness against Stewart was Douglas Faneuil (search), a young former brokerage assistant who vividly described Bacanovic's order when he learned Waksal was trying to sell: "Oh my God. Get Martha on the phone."
Ann Armstrong, a veteran Stewart assistant, also testified Stewart had altered a computer log of a message Bacanovic left earlier that day about ImClone.
But the verdict on March 5 — guilty on four counts apiece for Stewart and Bacanovic — set off a string of events as dramatic as the trial itself.
In April, lawyers for both defendants accused one juror of lying about an arrest record in order to get on the trial. Cedarbaum denied a request for a new trial, saying there was no proof the juror lied, or was biased.
And in May, federal prosecutors accused Larry F. Stewart (search), a Secret Service ink expert, of lying repeatedly in his testimony at the trial — mostly about the role he played in ink-analysis testing of a stock worksheet.
Just last week, Cedarbaum again denied new trials for Stewart and Bacanovic, this time saying there was "overwhelming independent evidence" — including Faneuil and Armstrong's testimony — to support the guilty verdicts.
Both the juror issue and the Larry Stewart perjury charges — which Stewart lawyer Robert Morvillo has referred to as "unprecedented double perjury" — are expected to form the basis of the appeal.
FOX News' Catherine Donaldson-Evans, Jamie Colby and The Associated Press contributed to this report.