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Stewart Sentenced to Five Months in Prison, Five Months House Arrest, Two Years Probation and $30,000 Fine

Aired July 16, 2004 - 10:00   ET


DARYN KAGAN, CNN ANCHOR: Good morning from CNN world headquarters in Atlanta. I'm Daryn Kagan.
Now in the news this hour, Martha Stewart learns if she goes to prison; and if so, for how long? A judge will hand down a sentence for the homemaking icon, who was convicted of lying about a stock sale. We have a live report coming up from New York in just a minute.

Meanwhile, other headlines. Abu Musab al Zarqawi, his group is claiming responsibility for Wednesday's killing of an Iraqi provincial governor. Insurgents ambushed a convoy that killed was transporting the governor, killing him and two guards. The Zarqawi networks claim was posted on three Islamic web sites today.

The West on fire. More than 3,000 firefighters are battling blazes in Alaska, California and Nevada. One thousand homes in Carson City, Nevada, have been threatened, as a 7,200-acre wildfire burns out of control. We'll bring you a live report from the front lines of that fire 15 minutes from now.

And President Bush is in Tampa this hour to speak at a conference on human trafficking. It's the first national forum on fighting sexual slavery and other types of human exploitation. This marks Mr. Bush's 23-visit as president to Florida; that is a key battleground state for the November election.

Martha Stewart has built a career on the pursuit of perfection and amassed a fortune preaching her gospel of domestic bliss. This hour, a federal judge holds the keys to her kingdom and her freedom, as she faces sentencing in her stock sale case.

Our Financial News reporter Mary Snow is outside the federal courthouse in New York City this morning.

Good morning.

MARY SNOW, CNN FINANCIAL NEWS CORRESPONDENT: Good morning, Daryn. And the decision hour is here. Martha Stewart arriving here about 50 minutes ago. She was accompanied by her daughter. She appeared calm dressed in dark. She was greeted by some supporters, both inside the courtroom and outside. The courtroom is packed.

We do know that Martha Stewart has sent a letter to the judge in this case. It is unclear at this point whether or not she will be speaking to the judge today at this sentencing. But she certainly will be given the opportunity to do so. The defense says at least 10 -- at least 1,000 letters have been sent to the judge on Martha Stewart's behalf and they have worked hard to give the judge some options.


MARTHA STEWART, CONVICTED OF CONSPIRACY: I'm a believer in American justice.

SNOW (voice-over): Martha Stewart is hoping justice for her will be served outside prison. Since her March conviction, Stewart and her lawyers have been pushing for probation and community service. To make their case, they hired the same consultant who helped shorten a jail sentence for Leona Helmsley on tax evasion charges.

HERB HOELTER, NAT'L. CTR. ON INST. AND ALT.: The alternative that we developed for Martha was to work at the Women's Venture Fund, which is a non-profit organization in New York.

SNOW: Stewart met with the organization in recent months, say people who attended the meeting. And the plan calls for her to volunteer to train economically disadvantaged women to start their own businesses.

HOELTER: What we're saying to the court is that we believe punishment has occurred and now is the time for healing. And a proper way to do that is to use a community service program in this situation.

SNOW: Legal experts say Stewart is likely to face a sentence between 10 and 16 months. Federal sentencing guidelines allow for the possibility of a split sentence.

JOSEPH BONDY, ATTORNEY: Martha can do five months in jail and then have to do five months home confinement. But she can't escape jail unless there is some form of a reduction from the guidelines.

SNOW: If Stewart is sentenced to jail, she'll likely serve time in a minimum-security women's prison in Danbury, Connecticut, about 20 miles from her Westport home.

Anti-war protester Joyce Ellwanger spent six months at Danbury after a trespassing conviction. She describes it as stark with little living space.

JOYCE ELLWANGER, FORMER DANBURY INMATE: When she realizes how crowded it is and how much privacy is denied to you, I think she's going to feel like I did. And she's going to feel diminished. And she's going to feel that a lot of choices that she might like to make for herself are gone.

SNOW: Choices like clothes, where the uniform is khaki shorts and shirts, and black steel-toed shoes. And seven hours of work is mandatory for wages of 12 to 40-cents an hour.

(END VIDEOTAPE) SNOW: Now, even if the Judge Miriam Cedarbaum does sentence Martha Stewart to jail, it's not likely that she'll be going very soon. This because the defense is expected to ask the judge to stay the sentence pending an appeal. The judge could rule on that today or perhaps at a later date.

And Daryn, we just learned that proceedings have started. It is expected that this sentencing could take about an hour -- Daryn.

KAGAN: And we'll be checking back with you on a regular basis. Mary Snow in Manhattan, thank you.

More on Martha now. Fans of Martha Stewart are mounting their own do it yourself project. They want their regal role model exonerated, or at least spared prison time. Fans of say they have delivered a petition of 14,000 signatures to the presiding judge, asking she not be imprisoned.

There's also a link for those seeking a presidential pardon for Martha Stewart. That letter is addressed right to President Bush. It says, quote, "A terrible injustice has been done to Martha Stewart." It says, "Her only real crime was to be successful, thereby eliciting the enmity of misguided and misinformed citizens who feel the she has represented the face of corporate crime."

Let's get some perspective now on the legal issues in the Martha Stewart case. For that, we turn to legal analyst, former U.S. Attorney Kendall Coffey. We've tracked him down in Nashville, Tennessee today.

Kendall, good morning.

KENDALL COFFEY, FRM. U.S. ATTORNEY: Hey, good morning, Daryn.

KAGAN: Is this a no-brainer? Is Martha Stewart going to prison?

COFFEY: She's going to prison. They're going to try very, very hard to play all kinds of sort of get out of jail free cards to get something called a "downward departure." Those are the key words that Martha Stewart hopes to hear sometime this morning, because that's the only way the judge can keep her out of prison. It takes very extraordinary circumstances.

We're hearing everything about more mail than Santa Claus gives in December, to her apparent willingness to do community service. But I think it's going to be a tough sell. There are at least four reasons why the judge is going to have to have her do at least some prison time. And those are four convictions of federal felonies.

KAGAN: Very quickly, looking at these -- one of last battlegrounds that her defense lawyers tried was going against federal guidelines, sentencing guidelines. And that was a problem and those were unconstitutional. The judge in this case did not accept that argument. What were they trying to argue and why wasn't it accepted?

COFFEY: Well, it was actually a good news/bad news thing for Martha. The bad news was they were trying to get the guidelines thrown out totally. Those are the guidelines that lock her in for 10 to 16 months, unless she can get that extraordinary thing called a "downward departure." The good news, Daryn, is at least the judge's order made it clear that there aren't going to be any possible enhancements.

And frankly, in the vast majority of sentencing proceedings, like today's, the big issue is how much more time can the prosecution pile on to the base level offense. So the good news for Martha is it's bad enough, it could be 10 to 16 months of either some combination of prison or home confinement. But at least she's not facing three, four years or more. Which some analysts had predicted early on could be her prison exposure here.

KAGAN: We'd seen earlier pictures of Martha Stewart arriving at the courthouse. We now have picture of the judge, Judge Miriam Cedarbaum arriving.

Let's talk about the pressure on her, which you've already to alluded to a bit Kendall, and that the timing of all of this and the era, in which we stand, and the very low tolerance for any kind of corporate icon to commit any kind of white-collar crime.

COFFEY: It's a hard decision because on the one hand, the judge wants to consider everything about Martha Stewart. She would like to be able to consider the fact that there is a huge amount of public support for her. That she is going to -- if she's put in prison, see damage done to a company, innocent people are going to lose jobs. And at the same time, Martha Stewart could do an awful lot of good, if she were simply relegated to community service.

But the reality is, Daryn, you could make those same arguments about all of the rich and famous. And if we're going to have justice that's equal in this country, the judge essentially has to send her to at least some period of incarceration.

KAGAN: One last Monday morning quarterback question for you here before we move on, Kendall. And that is besides the committing of the actual crime, where did the defense go wrong here that it came to this day, when Martha Stewart gets a prison sentence?

COFFEY: I think the defense really had an un-winnable trial, looking back at it with hindsight. There is a lot of controversy, Daryn, over whether she should have taken the stand. We've just seen in the Adelphia, and now in the Tyco trial that there was a defendant in each case that got acquitted who took the stand. That's going to increase the second-guessing.

But sometimes defendants can't take the stand because, frankly, they have an unbelievable, non-plausible story that the jury isn't going to buy. And they're just going to dig themselves in deeper by adding to the lies. And that may have been the reason in the final analysis why Martha Stewart didn't take the stand in this case.

KAGAN: All right. Well, we're going to keep you with us.

Once again, that sentencing hearing has started in New York City is supposed to take about an hour.

We'll be back to you, Kendall Coffey. Kendall, thank you.

From the legal to the personal, Martha Stewart's only child says that the case has shattered her mother's world. And at least at one point left the domestic diva feeling, quote, "feeling like her life was wasted." Here now is part of Alexis Stewart's interview with Larry King, which aired in March after the guilty verdict was handed down.


LARRY KING, HOST, "CNN LARRY KING LIVE": Were you shocked at the verdict?

ALEXIS STEWART, MARTHA STEWART'S DAUGHTER: Oh, yes, completely. I actually fainted. Nobody really knows that. But it was so horrifying and incomprehensible, that I fainted. And even the people around me didn't know.

KING: You ever fainted in your life?

STEWART: No, never. Never.

KING: Were you out?

STEWART: Yes. For at least -- I mean it might have been a millisecond, but I was dreaming and then I woke up. And I was unfortunately, still there.

KING: The moment when they read this thing, the judge reads it, and you're expected be the opposite, right?

STEWART: Yes, completely.

KING: So this is a complete reversal to you.

STEWART: Mm-hmm. And you want to turn it back. You know, can we go back five seconds?

KING: In retrospect, do you now -- do you comprehend it? I mean now that you've had time a time to sink in. Or is it still difficult?

STEWART: It's difficult. Somehow it's -- I told my friend it was perverse. And he said -- we'd argued over the definition of perverse. And I looked it up. It can mean when a jury disregards the evidence in their verdict. And I don't know if they did that on purpose. But that's what it felt like.

KING: How do you think she's going to handle all this?

STEWART: She'll be OK.

KING: She's always been strong, right?

STEWART: Yes. KING: And stoic. I mean she's kind of above the fray in a sense. How did she handle the verdict?

STEWART: Well, she didn't faint.


KING: No, she did not.

STEWART: I know she's been...

KING: What did she say to you?

STEWART: She's disappointed over feeling like a -- her life was wasted. Everything she did is ignored over something that...

KING: Trivial.

STEWART: Trivial that maybe didn't happen and...


KAGAN: Now, while the sentencing -- it's actually resolves Martha Stewart's legal fate, at least pending her planned appeal, her business fortunes remain very much undecided.

We'll get the bottom line of scandal from correspondent Allan Chernoff.


ALLAN CHERNOFF, CNN FINANCIAL NEWS CORRESPONDENT (voice-over): Martha Stewart's business empire has turned into a shrinking, money losing operation since her indictment and conviction. The business rose on Martha Stewart's image of perfection. Now it's falling.

UNIDENTIFIED MALE: As long as her reputation is damaged in any way, it's going to have a direct impact on the long-term prospects of this business.

CHERNOFF: Most trouble, the magazine that is the heart of Martha Stewart Living Omnimedia. Advertisers have been fleeing. Ad pages in Martha Stewart living plummeted 42 percent during the first half of the year, compared to the same period last career. And ad revenue has collapsed 52 percent, the worst performance of any major publication. The company has cut circulation promised to advertisers by 20 percent down to $1.8 million.

BRENDA WHITE, MEDIA DIRECTOR, STARCOM USA: The view from a buyer's perspective is that there is some cause for concern with the fact that a lot of advertisers have pulled out.

CHERNOFF: The company has put Martha Stewart's syndicated television program on hiatus for the coming season and cut its staff. Martha Stewart Living merchandise sales have held up, but the company will be getting smaller royalty payments from K-Mart under a new contract.

Martha Stewart Living Omnimedia declined to speak on camera. A spokesperson said, "People are focused on doing what we love to do and producing the products we know our customers love. It's business as usual."

But increasingly, it's business without Martha Stewart. Her replacement is chief executive Sharon Patrick is engineering a subtle re-branding. Beginning in September, the flagship magazine will show a redesigned cover to emphasize the title "Living," de-emphasizing Martha Stewart's name. "Every Day Food" magazine dropped its subtitle "From the Kitchens of Martha Stewart Living."

(on camera): While the company is suffering the impact of Martha Stewart's conviction, it is in no danger of collapse. To the contrary. There is plenty of cash on the books and no debt. But investors fear there may be no earnings for sometime to come. The stock is trading near its lowest level since Martha Stewart was indicted.

Allan Chernoff, CNN Financial News, New York.


KAGAN: It is happening right now in a New York City courtroom, the sentencing of Martha Stewart. We are all over the story and will bring you the judge's decision as soon as it happens.

Also, wildfires rage out in the West, threatening hundreds of homes. We'll take you live to Carson City, Nevada for a closer look when CNN LIVE TODAY returns.


KAGAN: It is fire season in the West. Hundreds of thousands of acres have burned in Alaska, California and Nevada. Firefighters are closer to controlling wildfires in California, but flames in the Angeles National Forest are still advancing, and a fire in Pine Canyon has grown to more than 10,000 acres. Hundreds of residents from three small communities have been evacuated. About 1,400 firefighters are on that line.

Hundreds of firefighters are working to control a fire that's burned 14 homes on the outskirts of Nevada's capital city.

Our Ted Rowlands is in Carson City with the latest.

Ted, good morning.

TED ROWLANDS, CNN CORRESPONDENT: Good morning, Daryn. There is a lot of concern here this morning in Carson City, because of the number of homes up on the hillside just to the west of this city. You can see the smoke and the flames of this fire very, very close to these homes. They were protected last night by firefighters.

The hope was that flames would die down last night. That did not happen. They continue to shoot up as high as a hundred feet in the air. Consuming more fuel and moving around. About a thousand homes are still considered threatened here. Fourteen homes, as you mentioned, have been completely destroyed. This morning, hundreds of people in Carson City are out of their homes hoping that firefighters can save them.

The problem, according to the people battling this blaze, is the way that it's been moving around.


KIRK FROSDICK, FIRE INFORMATION OFFICER: It's a demon. It really is a demon. It's a bomb waiting to go off. It's so unpredictable right now. We saw the fire move in four directions at the same time, one day. That's unheard of. And it happened because of the fire weather, fire behavior and just the way this system is working right here.


ROWLANDS: This fire, which started in the early morning hours Wednesday morning, has now consumed 9,100 acres in and around Carson City. The fire right now, according to firefighters, is moving towards the Lake Tahoe area. They're going to do their best using fire retardant and an airdrop to prevent that from happening. They say a wind shift is expected in the afternoon. And they say that many of these homes will again be threatened -- Daryn.

KAGAN: And Ted, as we went to you, of course, we talked about all the different fires that are burning in the West. Is there a problem about resources and getting enough firefighters in there to save the homes?

ROWLANDS: They say here resources is not a problem. They say the problem is this fire and the way that it is moving with the wind. It's very difficult to control. However, there are a lot of -- there is a lot of activity in the West. And resources most likely will be a concern, if any more fires break out, or if any of these fires grow considerably larger.

KAGAN: Ted Rowlands in Carson City, Nevada. Thank you for that.

We are watching what's happening in a courtroom in Manhattan. Martha Stewart undergoing sentencing right now. She, of course, is a Jersey girl who made one of her homes in Connecticut. We're live from Westport with hometown reaction, while we wait to hear on Martha Stewart's sentencing.

And if you own a home, you probably have noticed property taxes sometimes don't go in the direction that you would like.

But Gerri Willis is here to tell us you can fight back -- Gerri.

GERRI WILLIS, CNNFN PERSONAL FINANCE EDITOR: That's right. Are you paying too much in property taxes? You can fight town hall. We'll tell you how when CNN LIVE TODAY continues. (COMMERCIAL BREAK)

KAGAN: We are tracking what is taking place in a New York City courtroom. Martha Stewart undergoing sentencing right now. There has been some action in the court.

For the latest, let's go to Mary Snow in New York -- Mary.

SNOW: Daryn, we do know that Martha Stewart has spoken inside the courtroom. She told Judge Miriam Cedarbaum, "Today is a painful day. What started out as a personal matter has spread like oil." She said -- she told the judge she felt like she was being "suffocated to death." And she asked Judge Cedarbaum to, "remember all the good that I've done." She also told the judge she's been devoted to her company. And she said, "Please consider all the suffering I have experienced over the past 2 1/2 years."

Martha Stewart had the opportunity to speak. We are waiting for more comments. After she is done, it is anticipated that Judge Cedarbaum will give remarks and her sentence.

KAGAN: And we are expecting that sentence to be anywhere from 10 to 16 months. As soon as that happens, we'll checking back with you, Mary, and have the latest right here on CNN.

Now, the numbers you might really care about are property tax numbers. And that's our "Top Five Tips" today. When local governments are strapped for cash, they often look to homeowners to bail them out. According to the National Taxpayers Union, property taxes were up 20 percent in the three years that ended in 2003.

UNIDENTIFIED MALE: This just in. Martha Stewart getting five years -- five months. Five months in prison...

KAGAN: OK, if you'll just let me pause. We're getting word that Martha Stewart has been given five months in prison for the four counts, the four conspiracy counts of fraud that she was convicted of earlier this year. Just getting that word in from our reporters and producers coming out of the courthouse in Lower Manhattan.

Let's bring our Mary Snow back in.

Mary, five months; a lot less than what a lot of people were predicting Martha Stewart would face.

SNOW: Well, you know, Daryn, underneath the federal sentencing guidelines, some legal experts had said that they anticipated that the prison term would be at least five months. And as you had just reported, that is what Judge Cedarbaum has sentenced Martha Stewart to, five months in prison. And two years of supervisory probation. This, after Martha Stewart got up in court. Remember, she did not testify at her trial. And she told the judge, speaking on her behalf, to "Please consider all the suffering that I have experienced over the past 2 1/2 years."

She also asked the judge to remember, "Please remember all the good that I've done." That she's been devoted to her company. And in a personal statement saying, she felt like she was "being suffocated to death." Now, lawyers point out what Martha Stewart said in court was really crucial, because her attorneys have said that they plan to appeal Martha Stewart's conviction.

And having said that, anything that she said in court, any kind of admission would be used against her at a later date. So she had to be very measured if she did get up in court and say anything. Now it is anticipated that her lawyers will ask the judge to stay the sentence. And this pending the appeal. And number of legal experts have said that it's likely that the judge may do that, because the sentence is of such a period that -- the -- why have her serve the sentence before the appeals process went through?

So once again, the news is five months in prison, two years supervisory probation.

What happens now, too, is that the judge can recommend a prison and the Bureau of Prisons will come up with the ultimate destination. They have the final say. If she is to report to prison, if she does not -- if the judge doesn't stay the sentence, the Bureau of Prisons saying it's usually between 60 and 90 days before a convict is to surrender. So, it's likely that if she does have to start a term that it won't be happening any time soon.

This, after a process after Martha Stewart's conviction, in which her attorneys tried to convince Judge Cedarbaum to give her probation and community service. They hired a sentencing consultant. They proposed a plan for Martha Stewart to do community service at a non- profit organization here in New York.

The -- one of the arguments her attorneys were making, that this behavior around the ImClone stock sale was a one-time behavior that was not consistent with her career and her charitable work. And also that she is the head of a company, and that her company would suffer without her being there.

So, you know, she looked very calm going in to court today. She was accompanied by her daughter and her attorneys. There were supporters in the courtroom. It was packed. And it had been anticipated she may say something. And she did. She may also say something when she comes out outside the courtroom and speaks to reporters -- Daryn.

KAGAN: OK. Just to go over for our viewers that are joining us. Martha Stewart has been sentenced now on her felony conviction, five months in prison, two years probation and a $30,000 fine.

As you heard Mary say that she did make a statement before Judge Cedarbaum before that sentence was handed down. A statement that would have to be limited in what she'd be able to say. She had to show that she had some amount of humility in this. And yet, she couldn't show anything that admitted she was doing a crime because, of course, her lawyers plan to appeal not just the sentence but the conviction as well. So if we still have Mary with us, you seem to answer the question -- we don't expect to see Martha Stewart hauled off in handcuffs even though she's been sentenced to prison. There's still the appeal and still the decision, which must be made about where she'll serve her time.

SNOW: Absolutely, Daryn. Her attorneys can ask the judge for a destination. Usually the Bureau of Prisons assigns somebody to a prison 500 miles within their home. It had been anticipated that she would perhaps go to a women's minimum-security facility in Danbury, Connecticut. There is also a facility in Alderson, West Virginia. Those were seen as the two top likely sites.

The attorney can ask for a designation. The judge can recommend a designation. She'll send it along to the Bureau of Prisons. The Bureau of Prisons will have the final say.

But as you pointed out, you know, a normal term would probably start within about 60 days. But her attorneys are asking -- or planning to ask the judge to stay that sentence pending the appeal. They have made it very clear that they're going to appeal this. They hired Walter Dellinger, a very famous attorney, to handle that appeal. They're going to make a case. I think that they have to file within about 10 days.

And Jeffrey Toobin, our legal analyst, had been saying earlier today that it is likely that the judge may stay the sentence until that appeal is done, because the sentence is so -- is of a period that she might serve a sentence before the appeals process was finished. So will -- we might hear from the judge about that decision pretty shortly.

KAGAN: Yes. And our Jeffrey Toobin, just one of the many CNN personnel inside the courthouse. We expected to hear from him when he is able to come out.

Now, this is just one of the sentences handed down today. Peter Bacanovic, Martha Stewart's broker, is supposed to face his sentence later this afternoon.

SNOW: Right. He's going to be sentenced at 2:30. And you know, the judge, just a couple of days ago, said that it would be OK to separate the sentences. Bacanovic's attorneys all along had wanted to separate the trials. The judge did not let that happen. But his defense team felt that he was owed his own sentencing. He always -- they felt that he was cast in the shadow of Martha Stewart. And they've always said that Peter was not given a fair trial as well.

But he will be sentenced at 2:30 this afternoon. He also, similar charges and the sentence that is similar under the federal sentencing guidelines, 10 to 16 months. And the obstruction of justice charges that both were convicted of really carried the heaviest sentences. So 10 to 16 months for him as well, or the guidelines.

KAGAN: And we've split the screen. We see Mary or myself on one half of the screen, the other half you see the steps of the courthouse in Manhattan. We do expect at any minute, as the hearing wraps up, for Martha Stewart to come out.

Mary, you've covered this trial and these proceedings for a number of months. Martha Stewart has so far really not said anything to the supporters, to the people gathered outside the courthouse, as she goes in or she goes out.

Actually, Martha -- Martha -- Mary, I'm going to have you hold on one second. I want to bring Kendall Coffey, our legal analyst, in, who's been following this, to have him comment on the sentence.

Once again, Kendall, five months, two years probation and a $30,000 fine.

KENDALL COFFEY, CNN LEGAL ANALYST: I think, realistically, it's the best result she could have hoped for. She's got to go to prison, Daryn. We talked about that before. We just can't have totally separate justice for the rich and famous, but I think, everything considered, even though there are a lot of bad breaks that came her way, it's something that I wish -- I'm sure Lea Fastow, who has entered a prison for 12 months right now for a tax issue on Enron, would desperately like to have for herself.

So as these kind of sentences go, Martha Stewart got the very low end and the best realistically available outcome.

KAGAN: Well, and you say you can't have different justice systems for the rich and famous. Is it possible somebody who was not as rich and famous as Martha Stewart facing the same type of charge wouldn't have gone to prison?

COFFEY: Well, I think that if in fact the person had an almost identical profile in terms of a blameless previous life, solid community contributions, and an isolated transgression. It was a coverup in the sense of something that was thought about. It wasn't an impulse crime. But you're really talking about a single bad episode in an otherwise outstanding career and an impeccable respect for our laws. So I think that the Joe Schmoe with a comparable clean record, with some number of positive accomplishments along the way, would have also had a shot at five months.

And let's face it, lots of community support and good lawyering doesn't hurt either.

KAGAN: All right, Kendall.

Stand by, because I want to get back to you, but Mary Snow, outside the courthouse, has some more information for us -- Mary.

SNOW: Daryn, the judge has just granted a stay of sentence pending the appeal. This was widely anticipated, and now the judge has granted that stay. So bottom line, it means that Martha Stewart, even though she's been sentenced to five months in jail, will not be reporting to prison anytime soon. The attorneys will file an appeal, and then it's questionable, of course, the timetable of how this whole process will work out. But once again, Judge Miriam Cedarbaum has granted a stay of sentence pending an appeal -- Daryn.

KAGAN: All right, Kendall, not a big surprise there. That's pretty much how we expected this to proceed? Kendall, do we have you with us? Kendall Coffey?

COFFEY: I'm not hearing. I'm not hearing.

KAGAN: All right, Kendall, a little bit of problem with Kendall Coffey being able to hear us from Nashville.

Mary, once again, we're showing a split screen here. The other half of the screen, you see the steps of the courthouse. Since Martha Stewart will not be going off to prison today, I imagine there is a good chance we'll be seeing her come out of the courthouse at that point. Do you expect she'll make any kind of statement?

SNOW: Absolutely, Daryn. She will be coming out that courtroom steps, and it is possible that she could be making a statement outside the court.

You know, as you mentioned, during her trial, she did not say anything. She did not testify on her own behalf. But Daryn, since her conviction, we've seen Martha Stewart out in public, and she has been somewhat more vocal.

Just about a month ago, she spoke about a development in her case, she spoke on camera, and she said that she believed in the American justice system, and she has been pretty vocal.

Also, she has been posting messages on her Web site, keeping her supporters updated about the trial proceedings, the sentencing proceedings. So we could see a statement from her on that site as well. But it is possible that she may be making some comments when she does come out of the courtroom.

KAGAN: All right, well, whether or not she has something to say today coming out of the courthouse, she will have something to say to our Larry King. We're getting word that Martha Stewart will give her first and only live interview. That will be coming up Monday, 9:00 p.m. Eastern, with our Larry King, and she will be taking your phone calls. So viewers who are interested in having a chance to talk to Martha Stewart or just hearing what she has to say, be sure to tune in Monday.

And it will be interesting, Mary, to see how much she is able to say. As you said she did make a statement before the judge today before she was sentenced, but this case is still very much alive for her in terms of what she is able to say, because of the appeal of the sentence and the conviction.

SNOW: That's right, Daryn. And you know, we're going to monitor those courtroom steps, because court is adjourned. So she could be walking out at any moment, so we'll keep an eye on that. But As you mentioned, if she had admitted any kind of guilt, even in terms of her apology, how she worded it was going to be very closely watched, to be used against her in an appeal. So lawyers said that she really walked a tight balance. And she did also write a letter to the judge on her behalf before coming here today.

But, you know, in talking to her defense team beforehand, it wasn't 100 percent sure about what exactly was going to happen here today. So I guess she felt pretty strongly about it, and one of the arguments -- I will tell you that a very immediate reaction right in this neighborhood on Wall Street, Martha Stewart's stock right now is rallying about 20 percent. And on Wall Street, sometimes people watch what investors are thinking, because sometimes their way of trading is indicative of how they think. And there has been talk that Wall Street had been anticipating a short sentence.

So once again, just to wrap up, she has been sentenced to five months in prison, two years of probation, but the judge has stayed that sentence pending an appeal. She has also been told to pay a $30,000 fine -- Daryn.

KAGAN: All right, thank you so much. Mary Snow is outside the courthouse. I believe we have Kendall Coffey working once again.

Kendall, help us break down this sentence, which as you heard Mary report, that Martha Stewart Omnimedia stock rallying 20 percent. So at least on Wall Street, they think that this wasn't as bad as it could have been. Five months in prison. Is that a true five months, or can she do half time if she's good?

CAFFERTY: No, that's five months. So she'll serve virtually every day of that.

One of the things about the federal sentencing guidelines, Daryn, that have been so much in controversy lately, is they basically eliminated those huge time-offs for good behavior that we used to have. So she'll be serving five months.

To Martha Stewart, it will be an ordeal, a misery every single day.

On the other hand, one of the things that she really needs to think about right now is it -- five months is still something that can go pretty fast. She could be basically out of prison by St. Patrick's Day, ready to resume a new life, and Daryn, she doesn't have a serious shot of winning this appeal.

KAGAN: Why not?

CAFFERTY: Because she doesn't have any issues that are going to take the very heavy presumption of correctness when a jury considers everything, looks at everything, and throws it out. This judge, for example, during the trial ruled for Martha Stewart in her favor on the single most important issue, which you may recall was that securities fraud controversy. The other rulings of the judge on evidence, by and large, were either right down the middle or maybe slightly helpful for Martha Stewart.

What it's going to come down to, is she wants to talk about a juror who misrepresented some his past arrests. We remember the very talkative guy who was on TV right after the conviction, and apparently wasn't quite clean on everything that had happened in his past when he was testifying as a prospective juror.

We also know about the ink expert who has now been prosecuted for perjury. But the reality is, none of those things are nearly enough to basically affect the fundamental fairness of the trial. There was lots of evidence, including two people who were very close to Martha Stewart. The jury made their decision. It's not going to change at this point.

So whether she puts it off for a year or two, which she certainly could, by going through the appellate process, or just gets through it now, sooner or later, those five months in prison are going to be five months in which Martha Stewart is going to have to face the music.

KAGAN: So would your advice, if Martha Stewart is your client, to say, you know what, this is going to happen, you might as well go now, because you're going eventually.

COFFEY: I would say that, especially because there is every chance that she could come back in some role for this company sooner than later. A lot of people still believe in Martha Stewart. Obviously she is still considered very important to this company. And if she just stretches it out on an appeal, which I don't think is winnable, it sort of keeps everything in a clouded, uncertain state for that much longer.

Even the reaction today, the stock going up a little bit, says that, hey, this prison sentence is something that Martha Stewart, and maybe the company, might be able to live with. So why postpone, why create any longer clouds than necessary? It's time to bring closure to what's been for many people a very, very difficult and significant ordeal.

KAGAN: And as Martha Stewart herself said as she appeared before the judge, please consider how much she has already suffered, and that is before the sentence was even handed down or the prison term began.

Kendall, you stay with us. Our Allan Chernoff was actually in the courtroom when the sentence was handed down, when Martha Stewart made her statement to the judge.

Let's get his take on what took place -- Allan.

ALLAN CHERNOFF, CNN CORRESPONDENT: Well, Daryn, as you've heard, the judge did sentence Martha Stewart to five years in prison, five years of home confinement -- five months -- excuse me -- of each, five months of each, and that's about as good as Martha Stewart could have gotten under the federal sentencing guidelines.

In the courtroom, Martha Stewart really not showing much expression as she stood hearing her sentence, and she did, after it was all over, turn around, kiss her daughter, Alexis. She also did say to the judge in open court that it was a shameful day for herself, for her family, also for her company, that she loved very dearly. She also asked the judge to consider all the suffering that she has experienced over the past couple of years, and the judge, in giving out the sentencing, did in fact say that she feels Martha Stewart has suffered quite a bit, and that she will continue to suffer.

The judge also said that she has read through the more than 1,500 letters delivered to the court and she said, clearly, you have touched many lives, you have helped many people. So the judge did seem somewhat sympathetic to Martha Stewart's situation.

But not all that much expression from Martha Stewart, perhaps a drop of relief. She appeared to be a little more relieved when she finally did turn around at the end of all the proceedings to give a kiss to her daughter. When she walked into the courtroom, very downcast. Martha Stewart clearly looked quite nervous at the outset of the entire proceeding -- Daryn.

KAGAN: And more on what the judge had to say there, Allan. You said she made reference to all the letters that had been written on Martha Stewart's behalf. Did she also make reference to how she was limited on the other side about the sentencing guidelines and what she was basically forced to hand down?

COFFEY: Right. She said pretty much this is a situation that fits right into the sentencing guidelines. She had indicated that even prior to today, because there had been a motion made by Martha Stewart's attorneys pointing to a recent Supreme Court case, Blakely vs. Washington which has raised a lot of questions about the sentencing guidelines. But the judge here said that simply does not apply whatsoever, and she said I'm just sticking right here to the sentencing guidelines.

And she essentially is giving Martha Stewart the minimum, according to those sentencing guidelines, 10 months and a split sentence, five months will be in prison and most likely in a prison camp. She said that she would be willing also to recommend the specific camp that the Martha Stewart legal team would be advising.

KAGAN: So just do I understand, there is five months in prison. Is it an additional five months of house arrest?

COFFEY: That's exactly correct. Right, so five plus five, we get 10 months. The house detention would most likely include Martha Stewart actually wearing an electronic bracelet. But Robert Morvillo, her attorney, argued in court, that she should be permitted not to have to wear an actual bracelet for there to be some other electronic monitoring to ensure that Martha Stewart is actually in the house. Martha Stewart herself said that she would choose to stay at her Bedford, New York home. She of course has quite a few homes. So she is choosing that specific home. And also, other rules here, they do allow Martha Stewart to actually leave for doctor appointments.

KAGAN: And, Allan, let me jump in here, I'm just jumping in here for a second, because Martha Stewart, as we look at the live picture coming down the steps of the courthouse. You see her attorney. There you can see as the people part. She's coming down the steps.

Allen, any guess as to whether she will be stopping to make a statement to her supporters? CHERNOFF: Daryn, we have understood that her plan certainly prior to today had been to make a public statement following this entire proceeding. So we're expecting that she will. But let's see if that in fact does happen. Because she did, of course, make a plea to the judge and speak openly in court.

KAGAN: It looks like she's about to do that, Allan. So let's listen in to Martha Stewart.

MARTHA STEWART, DEFENDANT: OK, I'd like to make a brief statement.

It's not on. Is there a speaker? Well, which is -- who -- which television? Oh, OK.

Today is shameful day. It's shameful for me, and for my family and for my beloved company, and for all of its employees and partners. What was a small personal matter came -- became over the last two years an almost fatal circus event of unprecedented proportions. I have been choked and almost suffocated to death during that time, all the while more concerned about the well being of others than for myself, more hurt for them and for their losses than for my own, more worried for their futures than the future of Martha Stewart, the person.

More than 200 people have lost their jobs at my company, and as a result of the situation, I want them to know how very, very sorry I am for them and their families.

I would like to thank everybody who stood by me, who wished me well, waved to me on the street, like these lovely people over here, smiled at me, called me, wrote to me. We received thousands of support letters and more than 170,000 e-mails to And I appreciate each and every one of those pieces of correspondence. I really feel good about it.

Perhaps all of you out there can continue to show your support by subscribing to our magazine, by buying our products, by encouraging our advertisers to come back in full force to our magazines. Our magazines are great. They deserve your support.

And whatever happened to me personally shouldn't have any effect whatsoever on the great company Martha Stewart Living Omnimedia.

And I don't want to use this as a sales pitch for my company, but we love that company, we've worked so hard on that company, and we really think it merits great attention from the American public.

And I'll be back. I will be back. Whatever I have to do in the next few months, I hope the months go by quickly. I'm used to all kinds of hard work, as you know. And I'm not afraid. I'm not afraid whatsoever. I'm just very, very sorry that it's come to this, that a small personal matter has been able to be blown out of all proportion, and with such venom and such gore. I mean it's just terrible.

We are going to appeal, so I'm not going to talk about the case. I do want to introduce you -- first, I want to thank Bob Morvillo and his whole team for doing the very best job they could do in defending me. And I also want to introduce you to Walter Dellinger from Washington D.C., from O'Melveny and Myers, he's going to be handling the appeal, and he has comments to make. So here's Walter Dillinger.

WALTER DELLINGER, STEWART'S ATTY.: We believe that there are very significant issues to be brought before the court of appeals. They are their are at least five issues that we think -- there are at least five issues that we believe are worthy of serious consideration, some of which are questions of first impression for the court of appeals.

The court of appeals has to first of all deal with a very unprecedented situation. It has to deal with a case in which there were, after the trial was over, two extraordinary revelations of perjury: one by a very outspoken juror, and one by a key government witness. The perjury by a juror placed on the jury someone, who failed to acknowledge a gender-based arrest, the perjury by a key government witness poses a question for the court of appeals of when is someone in a position of such influence in the government that it's really perjury by the government when the head of a forensic laboratory commits knowing and willful perjury about a key matter in a trial? This was a perjury that was known to four other staff or officers of the secret service, and we think that will be an issue.

There are questions of first impression that this court of appeals has yet to resolve, has yet to resolve, about whether someone must be aware that making a false statement in a certain context is in fact a crime. The standard form was not provided to Miss Stewart.

And there are issues about a very unprecedented count that was included in this charge and was there for the whole trial. It was called count nine, which alleged that it was a crime of stock manipulation for her to assert her innocence. The trial was also pervaded by a notion, clearly erroneously, that she was charged with criminal insider trading. She was never charged with that. And yet the prosecution was able to mention secret tips 17 times in its opening statement.

So the whole atmosphere of the trial was one about a crime that was never charged, and never happened -- there was never any insider trading -- and about a charge that was dropped at the end of the trial after the damage had already been done, and our excellent trial team, led by Bob Morvillo, was unable to put on evidence and experts to show that the trade, as they alleged it to have happened, would not have been a crime.

Individually each of these represents a serious issue. Cumulatively and collectively, I think they make a very strong case that wasn't a fair trial.

And finally, as you know, Judge Cedarbaum did sentence her under the sentencing guidelines, and there will be issues in the courts of appeal under recent decisions of the United States Supreme Court. We have two decisions of the United States Supreme Court, the Crawford decision and the Blakely decision, both of which have come down since this trial was over, which will present significant issues for appeal.

KAGAN: So we've heard from Martha Stewart after she's been sentenced, once again, five months in prison, five months house arrest, $30,000 fine, and two years of supervised probation.

Martha Stewart making her statement, a defiant Martha Stewart, saying that this was a shameful day for her, for her family, for what she calls her beloved company. She said this was a small personal matter that was blown up into a fatal circus of ridiculous proportions. She apologized to the 200 people of her company that have lost their jobs and she gave thanks to the many fans who she believes have supported her, and then, as she looked right into the camera, she said, I'll be back, I'm not afraid, I'm just very, very sorry it has come to this.

Martha Stewart might have a lot more to say. She's going to be with Larry King. That's the only place you'll see this interview, first and only live interview after the sentencing. It will be Monday night at 9:00 p.m., and she is taking your calls.

KAGAN: While we got to hear from Martha Stewart, our Jeffrey Toobin was actually in the courtroom when the sentence was handed down.

Jeffrey, your impressions please.

JEFFREY TOOBIN, CNN SR. LEGAL ANALYST: Boy, it was an extremely dramatic moment in that courtroom, capped, of course, by Martha Stewart finally speaking. Remember, during the six weeks of the trial, Martha Stewart didn't say a single word. But she spoke for about five months. She read from a typewritten text. She was really almost weeping when she began, although she built up a sense of confidence as she was going along. She said that today was a painful day, it was a shameful day. She said that this personal matter spread like oil across water. It just kept spreading, that it turned into a problem of monumental proportions for her company, and what she really regretted, she said, was that this problem caused so many problems for the company she loves. She spoke several times, both later after -- in this press conference here or this appearance, and then in court, about how much she loved her company and the pain that the losses to her company caused.

KAGAN: Jeff, let's talk about...

TOOBIN: And then the judge -- sorry.

KAGAN: Yes, we've kind of heard some of that. While we have you, our legal analyst here, I want to get your thoughts on what we've just heard from the appeals attorney, saying that there is five issues they're going to appeal on.

Just quickly as we go through them, any of them do you think have any strength? First of all, the two perjury charges that are out there, once again a juror and one against a key government witness.

TOOBIN: Well, Walter Dellinger is really one of the most distinguished lawyers in America. He was the acting solicitor-general under President Clinton, very highly respected. I think he has a very uphill climb here. True, it is a very unusual circumstances to have a government witness charged with perjury and a juror -- he has not been charged with any crime, but apparently information has surfaced that he may have committed perjury in jury selection. Those are unusual situations. But it is very hard to get a conviction overturned. And based on what I heard from Walter Dellinger today, I do not think that her chances of winning on appeal are much more than 10 percent.

KAGAN: And just real quickly, this idea of questions of first impression, that perhaps Martha Stewart didn't even know she was committing a crime, is that an excuse?

TOOBIN: No. That is -- I think what he was saying by questions of first impression, was that the courts of appeals haven't really dealt with a situation just like this. But in terms of Martha Stewart not knowing, you don't have to know that when you're sitting with an FBI agent that you have to tell the truth; there is no requirement that you be told that there is a law against it.

I think the appeals here are likely to take some time. I mean, she got bail pending appeal, so I think it is unlikely she will serve her sentence until early or even mid 2005, but the odds overwhelmingly favor at this point that Martha Stewart will be going to jail.

KAGAN: And the five months in prison, the five months house arrest, we've heard from Jeffrey -- from Allan Chernoff that he said the -- her attorney was already arguing, she shouldn't have to wear one of those ankle bracelets while she is serving house arrest.

TOOBIN: Right, you know it's interesting -- that's right, and he lost that argument, although he seemed to get permission to raise it again.

But in the courtroom, the only time there was kind of an audible wince in the courtroom was when Judge Cedarbaum said, and you're going to have to wear the monitoring device. There was somehow something so vivid, something so sort of degrading, frankly, about Martha Stewart being forced to wear this ankle bracelet. Now she'll have to wear it in public for those five months. Somehow that was even more shocking to people in the courtroom, I thought, than the five-month prison sentence, which was, more or less, expected, and really on the lower end of what she could have gotten.

KAGAN: All right, Jeff, don't go too far away. The other side of the story is the business part, and it's been very interesting to watch what Martha Stewart Omnimedia is doing today in light of the news of the sentencing.

And our Rhonda Schaffler is standing by with that news -- Rhonda.

RHONDA SCHAFFLER, CNN CORRESPONDENT: It's one of these sort of incredible stories you see on Wall Street. They call this sometimes a melt-up in the company's stock. Obviously investors and shareholders at least relieved by what happened today, because this stock is absolutely flying. This stock trades right here to the left of me, and there is a bit of a crowd as far as traders go. The stock is bouncing around. It's up about $2.91 right now, at about $11.55. It's been over $3 a share.

Generally speaking, this stock has been flying, up about 30 percent since this news came out. A lot of activity here, a lot of interest in that stock, and they continue to buy it.

Overall, by the way, Daryn, we're seeing a slight gain in the Dow, and Nasdaq just a bit weak.

We'll keep a watch on this and get back to you.

KAGAN: OK, the other stock involved in this story was ImClone. That's how this all started, as Martha Stewart sold off about 4,000 shares of that. How is that stock doing?

SCHAFFLER: You know, this is such an interesting story with ImClone, because if we put into perspective a bit what happened when she sold that stock, as far as her investment, she got about $228,000. If she'd only held on to that stock actually, at this point in the way that it had closed, $80.30 a share, her investment would be worth about $315,000. That stock has been an absolute success story since the time the scandal came out.

KAGAN: Fascinating stuff.

We'll be checking back with you from the floor of the New York Stock Exchange. Rhonda Schaffler, thank you for that.

And another reminder for our viewers, Martha Stewart giving an exclusive live interview to our Larry King. That will be Monday night, 9:00 p.m. Eastern, 6:00 p.m. Pacific. She's taking your calls, and she is speaking, and if it's anything like we just heard her on the floor -- on the floor -- in front of the courthouse, she is passionate and she has a lot to say. So that's Monday at 9:00 p.m.

Meanwhile, we're going to get started with the next hour of CNN LIVE TODAY right now.


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