Martha Stewart: the rise and fall of America's domestic goddess

Martha Stewart isn�t merely a household name in the US; she�s a lifestyle icon, whose indictment on charges relating to insider trading has got everyone talking. But is she really guilty as charged, or the innocent victim of a witch hunt undertaken by a government determined to prove itself after the Enron and WorldCom debacles? Abigail Rayner reports

In some regions of America, to tell someone she was a �veritable Martha Stewart� used to be a compliment about a person�s cooking or home decorating skills. To say it in New York or LA would earn you a playful slap, but not cause genuine offence. These days, it is better to steer well clear of the expression, wherever you are.

Stewart was until recently the lifestyle guru of middle America. But the perfector of the tea towel and queen of the apple pie was no home economics pushover. She spun her talent for homemaking into pure gold.

Martha Steward Living Omnimedia is a multi-media empire comprising a number of magazine titles such as Martha Stewart Living, Martha Stewart Weddings, Martha Stewart Baby, a television show called Martha�s Kitchen, a mass retail brand called Martha Stewart Everyday, a specialty line of products called Martha Stewart Signature and Ask Martha, a newspaper column and radio programme.

When MSL launched on the New York Stock Exchange in 1999 Stewart was valued at more than $1bn.

Her perfection of the American Dream made her even more attractive to her fans. She is self-made, having started out in the unspectacular setting of Nutley, New Jersey, the child of poor second-generation Poles. Martha Kostyra was one of five siblings who learned cooking from her school teacher mother and gardening from her salesman dad.

Stewart had strayed far from all of that on 27 December 2001 when she made a mistake that ruined it all. The mishap and an alleged cover-up have brought criminal charges of obstruction of justice, conspiracy and securities fraud - all in all a nine-count indictment. She is also accused by the SEC of the civil charge of insider trading.

Stewart was on her private jet headed for Mexico and was unreachable when her Merrill Lynch broker, Peter Bacanovic, apparently tried calling her. He wanted to tell her to sell her shares in ImClone, the biotechnology company founded by her friend, the scientist, Samuel Waksal.

According to Stewart, she picked up a message from Bacanovic when her jet stopped to re-fuel. She then called Faneuil, who was filling in for Bacanovic, and told him to sell 3,928 shares of ImClone.

Stewart claims that this was based on an agreement that she had with Bacanovic to sell her shares if they fell below $60. Prosecutors allege it was because Bacanovic, a former ImClone employee and the stockbroker of record for Waksal, knew that Waksal, his daughter and other family members, were shedding their ImClone stock.

Waksal had been tipped off that the Food and Drugs Administration was going to reject his application for first stage approval of his cancer drug Erbitux. He pleaded guilty to six counts of obstruction of justice, perjury, securities fraud and bank fraud and has been sentenced to three years and seven months in prison.

It is a broker�s job to note big sell-offs in a stock and inform his client. Specific sales by individuals are confidential, however, and advising another client of them is against the law.

Worse than the act though, say prosecutors, was the cover-up. They allege that Stewart and Bacanovic lied to them, a matter upon which the Federal Bureau of Investigation and the US Securities and Exchange Commission are famously unforgiving. They also say the pair attempted to back up their story by doctoring a bank �worksheet� so that it appeared that they had agreed to sell the stock at $60.

On 30 September lawyers will file written motions in Stewart�s case. The trial begins in January.

�I think she�s going to jail,� says Jake Zamanksky, a New York securities lawyer. �You cannot lie to the US Government. You have two choices - you can either choose to take the Fifth Amendment and not discuss it, or you can tell the truth. You can�t do what she is alleged to have done and make up a phony story.�

The thrust of Stewart�s defence is expected to be claims of a witch hunt. Suggestions are that, with little progress in the Enron and WorldCom cases, Stewart presents a fine opportunity for the Government to prove itself. Zamanksy couldn�t agree more.

�Of course, they want to make an example of her. The people I speak to everyday, the ordinary investors, believe that the stock market is rigged in favour of insiders and against them. The regulators are trying to show that insider trading is unacceptable.�

Stewart may be more concerned about some of the other charges against her. The market manipulation charge centres on public statements made by Stewart on 7, 12, 18 and 19 June, in which she professed her innocence. Prosecutors allege that she did so in order to stabilise shares of MSL.

Some lawyers argue that it is tough to accuse someone of market manipulation simply for pleading their innocence. If they manage to convict her of the charge, however, the results could be catastrophic.

�The potential exposure for jail purposes could be extreme,� said Michael Bachner, a New York securities lawyer. �(The judge) will calculate the amount of the intended fraud - based on the amount the stock went up that day - and factor that into the sentence. It could add another five or six years to her sentence.�

Parole was abolished in 1987, so whatever the judge serves up is the term Stewart will face. Under the old law, people became eligible for parole after serving a third of their time. These days, defendants sentenced in excess of one year must serve 85% of their time.

Stewart has one last chance to escape all of this and that is by taking the stand. It would be a risk, but given her very public strategy so far, there is an expectation that she will do so.

�Juries expect to hear their side of the story,� said Bachner. �It�s one of those things that when you do, and you don�t hurt yourself, as compared to actually doing good, then people will think, �that�s an innocent person�. People will always think �if you�ve got nothing to hide, why not take the stand�.�

Whatever the outcome, Martha Stewart, the brand, is unlikely to fully recover from the ordeal. The name that was once synonymous with patchwork quilts and smiling Gerber babies now smacks of a cover-up and lies. And the problem is, it is plastered over every thing she has ever done.

Latest: On Monday 21 July, Martha Stewart�s lawyers accused the US Government of leaking details of her indictment to the press before she was formally charged, and demanded an investigation by the judge. This is against federal rules and could influence the grand jury. It is an attempt to get the case thrown out, but it probably won�t work.

Abigail Rayner is New York correspondent for The Times (of London).