Competitive Intelligence

Martha Stewart, Guilty on All Counts, Meets with Probation Officials; Jury Might Have Acquitted if She’d Testified

Last Friday’s news of felony convictions for Martha Stewart and her former broker left us all talking about how she’ll decorate her cell, but it also sent a strong message to the business world.

Stewart was found guilty of all four counts (obstruction of justice, conspiracy, and making false statements) arising from her sale of a Imclone stock in 2001. (A fifth charge, securities fraud, was thrown out last week.) The broker, Peter Bacanovic, was found guilty of four counts (obstruction, conspiracy, making false statements, and perjury) and was cleared of making false documents. Both will appeal. They each face 20 years in prison at their June 17 sentencing, although most experts think they will get about a year.

Stewart betrayed no emotion, by most accounts, although the Associated Press says she "grimaced and her eyes widened slightly" as the verdict was read, and the Los Angeles Times says she "appeared stunned" as she left the courtroom, while her daughter and one of her lawyers cried. According to one juror, the most damning testimony was that of Stewart's personal assistant, who told the court that Stewart altered a voice mail and a computer log after the feds began investigating. Several jurors criticized Stewart's minimal defense (her lawyers called only one witness) and pointed to her experience as a stockbroker 30 years ago as proof of a sophisticated ability to deceive in 2001 and 2002.

Stewart will "almost certainly" have to step down as a director of her company's board, although she can keep her majority stock ownership. (She resigned as CEO after her indictment.) Stewart still faces civil stock-fraud charges brought by the Securities and Exchange Commission, as well as class-action lawsuits by shareholders. Stewart's statement on her Web site says that she is "obviously distressed by the jury's verdict" but is glad to have personal support and will "continue to fight to clear my name." (However, the LA Times notices that an initial reference to her having "done nothing wrong" was deleted from the site.)

After watching their company's founder attain public ignominy and their company's shares loose a quarter of their value yesterday, the (law-abiding) directors of Martha Stewart Living Omnimedia Inc. released a statement, just to clarify things: "In spite of [today's] disappointment, it is important to recognize the significant contributions that Martha has made to advancing the domestic arts and improving the quality of life in and around our homes." A trademark specialist, quoted in the AP, perhaps put it more succinctly: "This is a terrible tragedy for a great brand."

Widely assailed with a failed defense strategy for their clients, Martha Stewart and Peter Bacanovic’s defense attorneys probably could have improved their chances of acquittal if they’d called a few more witnesses for the defense – especially Stewart herself. An excerpt from today’s New York Daily News:

Martha Stewart might have saved her skin by taking the witness stand to give her side of the stock-sale deal that's rocked her life, jurors said yesterday.

Six jurors said lawyers for the domestic diva made a huge blunder by mounting virtually no defense and muzzling Stewart, leaving them with little choice but to convict her.

"I was ready to hear her side," juror Dana D'Allessandro told NBC's "Dateline." "No matter who they put on. I wanted to hear from her."

"We just ... were hoping they would put up more of a fight or something," said Jonathan Laskin. "Or give us more to chew on. But it wasn't there."

The TV interview marked the largest gathering of jurors to speak out and the most detailed comments yet from members of the panel that convicted Stewart and her stockbroker Peter Bacanovic on Friday.

Legal analysts say it would have been a huge gamble to put Stewart on the stand because prosecutors could have used cross-examination to rip apart her explanation of her sale of 4,000 shares of ImClone stock.

She would also have risked a perjury conviction if she tripped up under oath, exposing her to a much longer prison stint than the possible 18 months she now faces.

There were also worries that the powerful businesswoman's temper would have flared under tough questioning.

Despite the risks, jurors said they were stunned when defense counsel Robert Morvillo abruptly rested the defense case after one witness.

"We were sitting there going, 'But we saw this and heard that,'" said Rosemary McMahon. "So it was, like, 'We need more.' ... We were waiting. We were hoping."

Without any ammunition from the defense, jurors said, they puzzled over possible explanations for the deal.

But in the end they believed the star prosecution witness, broker's assistant Douglas Faneuil.

The final nails in Stewart's coffin came when her assistant Ann Armstrong said she altered a key phone log, and friend Mariana Pasternak testified Stewart mentioned getting what prosecutors allege was an insider stock tip.

The panel members trembled with emotion and avoided making eye contact with the household queen as they prepared to deliver the stunning guilty verdicts.

"That was tough," said juror Chappell Hartridge. "We knew we were about to change two people's lives forever."

Although some jurors wondered whether Stewart was singled out for being a woman, others insisted she had to pay for breaking the rules.

"Laws were broken and lies were told. And money changed hands through means that were not altogether on the up and up," said Laskin. "It's not nothing. I think it's important."

So, why the conviction? Well, Stewart's defense attorney Robert Morvillo did concede during closing that the celebrity homemaker received a secret stock tip, but supported his argument by saying she was simply too smart to botch the cover-up she’s charged with committing. Admission of guilt? Apparently so. Too smart? I think not.

Still, Martha won’t be in jail long – and might even get probation – although if there are no obvious grounds for appeal, she’s might not get bail before her June sentencing and she can spent the springtime behind bars. Meanwhile, her heretofore-erstwhile business partners are jumping ship like drowning rats from MSO.

Regardless, the verdict sent a strong message of public intolerance of corporate shenanigans when it comes to powerful business moguls pocketing ill-gotten gains no matter how tiny or insignificant. Nobody is above the law. The truth shall set you free. We’re just not going to take it any more – and for Kozlowski and Ebbers, it’s time they get fitted for a tastefully tailored set of tangerine jammies.

- Arik