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CNN BREAKING NEWS

Martha Stewart Sentenced to 5 Months in Prison

Aired July 16, 2004 - 10:58   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.


DARYN KAGAN, CNN ANCHOR: Meanwhile, we're going to get started with the next hour of a CNN LIVE TODAY right now.
And with that we will go ahead and talk about the news -- the breaking news out of New York City. Martha Stewart has been sentenced, and that is what leads are headlines right now.

And our Allan Chernoff standing by with more on the sentence, what some might consider light, Alan.

ALLAN CHERNOFF, CNN CORRESPONDENT: Daryn, no question about it. It was definitely at the lightest end of the sentencing guidelines. Judge Miriam Cedarbaum sentencing Martha Stewart to five months in prison, five months of home confinement, then two years of probation, and then a few fines -- $30,000 in fines, and then a $400 special assessment.

The judge, in giving the sentence, said, "I believe that you have suffered and that you will continue to suffer."

She also said, Judge Cedarbaum said, that she believes "the public interest of the prosecution here has already been achieved."

And she also said that she has read each of the more than 1,500 letters that have been submitted to the court on Martha Stewart's behalf. And she said that Martha Stewart clearly has helped many people.

Now, in court Martha Stewart did speak before the judge. And again, she spoke right afterwards following the entire proceeding saying that it was a shameful day for her, for her family, and for the company that she loves very dearly.

She said that she feels very sorry that it has all come to this. It was pretty much of an impassioned plea inside of the courtroom. And what she said afterwards pretty much mirrored what she said before the judge. Let's have a listen.

(BEGIN VIDEO CLIP)

MARTHA STEWART, MARTHA STEWART LIVING OMNIMEDIA: 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.

What was a small, personal matter came over -- 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 as a result of this 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 marthatalks.com. 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 the 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.

(END VIDEO CLIP)

CHERNOFF: Martha Stewart giving a bit of a plug for her company and for her magazine. And the magazine, most certainly, does need some help because during the first six months of this year, revenues are down by 52 percent.

Advertisers have simply been fleeing "Martha Stewart Living" magazine. So, Martha Stewart trying to give a little bit of help over there.

By the way, the judge has agreed to stay the actual serving of the sentence until the appeal process is done. And within the next 10 days, Martha Stewart's attorneys plan to file their formal papers for appeal -- Daryn?

KAGAN: All right. We're going to talk about that appeal in just a moment. Allan Chernoff in New York City. Thank you for that.

We're also watching live pictures of the suburban that Martha Stewart is traveling in making its way away from the courthouse.

Now, you heard that -- Martha Stewart says that she will be back. This fight is not over for her. After she spoke, her -- the lawyer who she has hired to handle her appeal came out to talk about what issues they'll bring up upon appeal.

Let's listen in to that.

(BEGIN VIDEO CLIP)

WALTER DELLINGER, MARTHA STEWART'S ATTORNEY: We believe that there are very significant issues to be brought before the court of appeals. There 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 impressions of 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 -- the perjury by a key government witness poses a question for the court of appeals of when does someone be 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.

(END VIDEO CLIP)

KAGAN: And that was Martha Stewart's attorney commenting on what they will be doing upon appeal trying to keep her out of prison.

She has been granted a stay on her prison stay -- on her prison sentence -- five months in prison, five months house arrest, $30,000 fine and two years supervised probation as well.

But that will hold off while that appeal goes on. By the way we're getting word that her attorney has also requested that if she, indeed, does have to do the prison time, she's requested to go to Danbury, which is about 20 miles from her home.

The judge in the case says that she will pass that along to the Bureau of Prisons who will make the final decision on that.

Our legal analyst Jeffrey Toobin was in the courtroom when the sentence was handed down. We talked a little bit before the top of the hour about the possibility of the success of an appeal. And you don't seem very hopeful for that, Jeff?

JEFFREY TOOBIN, CNN SR. LEGAL ANALYST: I think it's really remote. Judge Cedarbaum has a very good record on appeals. Very few of her cases are overturned.

And remember, this is the judge who, during the trial, threw out the most serious charge against Martha Stewart -- the securities fraud charge. So the court of appeals may say to itself, hey this wasn't a judge that was looking to really stick it to Martha Stewart. She even threw out an important case against her.

So given the way the rest of the trial was conducted, she better have done something pretty darn terrible to justify overturning this case. And very few cases are overturned. And even though there is this really extraordinary situation of a government witness charged with perjury, and a juror apparently having committed perjury, and those are weird situations, I think the odds of getting the case overturned are slim.

KAGAN: Jeff, on the point of that count, count nine being thrown out, you heard Martha Stewart's attorney point out that wasn't thrown out until the end. He making the argument that, that prejudice -- that was a prejudicial aspect of this case, and it influenced the jury to think some really bad things about Martha Stewart.

TOOBIN: You know, that's really a stretch. I mean, you can imagine the government lawyers saying, you know, hey, he got -- you know, she gets a case - a count against him thrown out and that is somehow bad for her?

No, that was actually good for her that it was...

KAGAN: But timing.

TOOBIN: Sure.

KAGAN: Timing is everything.

TOOBIN: Timing is everything, yes. That's the theory.

But the evidence regarding all the counts really overlapped a great deal. This case was about the tip that she got through her stockbroker, from Sam Waksal to sell this stock and whether she lied about it or not. I mean, that was really what the case was about.

I don't think there was much extra evidence put in because of the securities fraud count. Yes, it's an argument to be raised, but it is worth remembering again how few of these cases are overturned and how hard it is to get a case overturned.

So, yes timing is important, but I don't think it's going to matter much.

KAGAN: Jeff, you heard Martha Stewart make her statement in the courthouse. You heard her outside the courthouse. This is a woman that still has a lot of fight in her. She says she's not afraid, that she'll be back.

But if you were her defense attorney, would you advise her, say, look, honestly, you are going. You are going to prison. We can fight this, but the sooner you get this over with, the better, so let's just go.

TOOBIN: You know, that's a very interesting dilemma because, you know, Martha Stewart is obviously full of energy and full of fight. But her problem, especially from a business standpoint now, is she can't really know how long this appeals process will last.

You know, if it goes very quickly, it could be done by the end of the year. It's possible, given how the appeals process sometimes works, that it won't be done until the end of 2005.

So how does she plan for her comeback when she doesn't know if she's going to prison in early 2005 or early 2006?

One approach might be, you know, just do it now. Get it over with. But one thing I've noticed in following the criminal justice system and being part of it for a long time is everybody waits as long as possible to go to prison. That is just a rule that seems to apply across the board. No one wants to go. And if they can delay it, they delay it; and that's what Martha Stewart is doing, too.

KAGAN: Well, you know when you hear people who have been to the minimum security type of facilities that looks like she'll be going to, it's no picnic. And you brought up...

TOOBIN: It is no...

KAGAN: Yes, go ahead.

TOOBIN: Well no, what's particularly interesting and I don't think what a lot of people know is that she is disadvantaged here in a peculiar way by being a woman.

There are so many more men who are in, white collar criminals who are in prison, that there are actually lots of options for white collar criminals to go to male-only minimum security prisons. But there are very few white collar women criminals. So there are essentially no prisons exclusively for white-collar women.

What they do is they lump them in with higher security risks, higher security prisoners. And that's what Danbury is. So Danbury is a fairly tough prison.

This is no country club. This is not like what she'd be going to if she were a man convicted of the same offense simply because those prisons don't exist for women. So this is going to be a tough environment for Martha Stewart.

I'm not saying -- this is not going to be like some bad movie. She's not going to be in physical danger. But it's going to be very tightly controlled, you know, curfews in and out. She's got -- she will have very little control over her day-to-day life. KAGAN: Very interesting point. And doing time with women who have done what types of crimes?

TOOBIN: Well, you know, I imagine a lot of drug offenses. I mean most people in the federal prison system are in prison for drug offenses of various kinds. Not necessarily drug kingpins, but couriers, people like that. Almost certainly she'll be, most of the people she'll be in prison with will be narcotics violators of one kind or another.

KAGAN: All right. Jeffrey Toobin, we'll be checking back with you. You were bringing up the business side of the story. It's been fascinating to see what has happened to Martha Stewart Omnimedia stock today on Wall Street. Our Rhonda Schaffler is tracking that for us.

RHONDA SCHLAFFER, CNN FINANCIAL CORRESPONDENT: Hi, Daryn.

Well, the latest here with this stock is there is still a lot of interest. And in fact, it's trading up about 28 percent higher right now. The stock is just around $11 a share.

Keep in mind that this stock really has been in a holding pattern for a couple of months as investors waited to see what would unfold on the legal side with Martha Stewart. At this particular point, this stock is still below where it used to trade before she was actually convicted. It was trading about $14 a share there.

But this has been an incredible jump today, up some 28 percent -- a lot of interest in this stock. We were talking about ImClone earlier. That stock is moving just slightly lower.

And as we watch this gain in Martha Stewart's stock, keep in mind that Martha Stewart herself still has a majority stake in this company as far as the stock goes. So at this point, shareholders actually seeing their wealth increase as traders continue to bid up the price of Martha Stewart's stock.

KAGAN: All right. Rhonda, we'll be checking back with you at the New York Stock Exchange.

When we heard Martha Stewart on the steps of the courthouse, she was defiant. She said she'll be back. She said she is not afraid. And she thanked all the support she had from her many fans out there.

What about reaction in her hometown, where she lives in Westport, Connecticut? Our Alina Cho is standing by there without story. Hello.

ALINA CHO, CNN CORRESPONDENT: Hi there, Daryn.

You know, important to remember that Martha Stewart was not born or raised her, but she has called Westport, Connecticut home for more than 30 years.

Remember, this is where she started her catering business in the 1970s, which eventually gave rise to her empire. Her estate, her sprawling six-acre estate which she calls Turkey Hill farm is a backdrop for her television show.

We are here on Main Street where it is not hard to find differing views about Martha Stewart's sentence. We have found two people with just that. Lisa Capanitti (ph) and Richard Montague.

She calls it a shameful day. Do you agree?.

LISA CAPANITTI, WESTPORT, CONNECTICUT CITIZEN: I agree. I think what she did was wrong, but I think she is being used as a pawn for the government. They've made her a scapegoat. And things like this go on every day on Wall Street. And no, I don't think she should receive any jail time.

CHO: You are a woman. You are a mother. You, I imagine, have taken some of Martha Stewart's tips in the past?

CAPANITTI: Yes, definitely. I watch her show, bought some of her products. Don't know too much about her. We're new to this area; but yes, I enjoy seeing her.

CHO: Richard Montague, an opposing view -- you say she did the crime, she should do the time?

RICHARD MONTAGUE, WESTPORT, CONNECTICUT CITIZEN: Yes, she perjured herself on a very important business issue. I'm a businessman, and I'm not judging her on anything other than that. But I think she deserves a minimal type of sentence and that's what I think she got.

CHO: We were talking earlier, and I think it's important to note you don't put her on the same plane as say a Kenneth Lay of Enron?

MONTAGUE: No. I mean, she's, you know, it's unfortunate. It's unfortunate, but what she did was wrong.

CHO: You have lived in this area for more than 40 years. What has Martha Stewart meant to Westport?

MONTAGUE: Well, I think Martha has made a contribution to the city, the town. There's no question about that. And her standing in the town was very good up until she got into an argument with her neighbors on Turkey Hill Road four or five years ago, whatever it was. And she took an embittered stance against those neighbors, and it caused a polarizing attitude in the town about her.

CHO: Just to give it some context, the neighbors had complained about the noise from the taping of her television show. She in turn wrote an article saying that Westport had lost its neighborliness. And so, that caused a rift.

MONTAGUE: That caused a real rift. And it made newspapers all over the U.S., by the way. And we had an article someone down in Hagerstown, Maryland sent me, and it said -- it was titled, "Martha, Won't You Please Be My Neighbor."

And that got circulated around -- around town. So, you know, I think it's unfortunate that this happened. But...

CHO: Richard Montague and Lisa Capanitti with daughter Gabriela. We thank you so much for joining us.

As you can see, Daryn, differing views.

Important to note that Martha Stewart has several homes, but she still does call Westport her home, her main home. She spends a lot of time here. Some interesting notes about Westport. It has always been an affluent community but a bedroom community until Martha Stewart put it on the map -- Daryn?

KAGAN: Alina Cho in Westport. Looks like Gabriela wanted to give her own interview right there.

CHO: I think she needs a nap.

KAGAN: Perhaps another time.

Yes, don't we all sometimes?

CHO: That's right.

KAGAN: Thank you for that, Alina Cho.

Well, Martha Stewart has no plans to nap. She is defiant. She is fighting back. She says she will be back. And she says she's not afraid.

She will be on "LARRY KING" Monday night, 9 p.m. This is the only live interview that she's going to give. And she will be taking your phone calls. So you'll see that Monday, 9 p.m. Eastern, 6:00 Pacific.

Also, full coverage of the sentence.

This is not the only sentence that will be handed down today. Peter Bacanovic, a broker in this case will also be sentenced.

Wolf Blitzer will be looking at all this, 5 p.m. today. Was the celebrity factor important in deciding that Martha Stewart was convicted and that she ultimately will be going to prison if her appeal is not successful?

Lessons learned from Martha Stewart -- that's what Paula will be looking at 8 p.m. And much more coverage as the evening goes on.

We still have a lot more to cover here on CNN LIVE TODAY. We'll do that after this break.

(COMMERCIAL BREAK)

KAGAN: We continue to follow the breaking news out of New York City. Martha Stewart has been sentenced to prison. The actual sentence, five months in prison, five months house arrest, a $30,000 fine, and two years supervised probation. Our Allan Chernoff was in the courtroom when the sentence was handed down. He has more from New York -- Allan?

CHERNOFF: Daryn, that combination of five months in prison and five months of home detention, that essentially is the minimum that Judge Miriam Cedarbaum could have given Martha Stewart -- 10 months under the federal guidelines.

So, Martha Stewart coming out fairly well, relatively well considering the situation, considering that the judge was certainly constrained by those federal sentencing guidelines.

Now just before hearing her sentence, Martha Stewart did stand up in court and read from a prepared statement, a very dramatic moment. Martha Stewart's voice almost cracking, almost tearful, but not quite. And as she spoke, she did seem to gain some strength.

She said it was a shameful day for herself, and for her company, and for her family. She said she dearly loved her company very much. She also said that she wants to continue to serve her country.

She talked about all the good that she has done, and she asked the judge to consider that in making the sentence. And, in fact, Judge Miriam Cedarbaum in announcing the sentence said, I do believe you've done a tremendous amount of good for many people.

And she that she had read the more than 1,500 letters that have flooded in to the courthouse in support of Martha Stewart. Judge Cedarbaum also said, I believe that you have suffered very much and that you will continue to suffer.

After the entire proceedings, Martha Stewart stepped right in front of the courthouse and spoke to the media.

(BEGIN VIDEO CLIP)

MARTHA STEWART, MARTHA STEWART LIVING OMNIMEDIA: ... 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.

CHERNOFF: Martha Stewart's legal team intends to appeal. They are not filing the papers just yet today. They have 10 days to appeal the case, and they intend to do so -- Daryn?

KAGAN: All right. Allan Chernoff in New York City, thank you for that.

So the question becomes, where will Martha Stewart ultimately serve her prison sentence. She apparently has asked for the judge to pass on to the Bureau of Prisons that she would like to do that at Danbury.

Experts say that, that is the most likely place where that would take place. It's in Danbury, Connecticut. And that is where the judge has recommended that she do her time. Another possibility though is Alderson, West Virginia.

Most of the inmates at Danbury are drug offenders who work seven and a half hours a day during their sentence. Stewart would earn a prison salary of 12 to 40 cents an hour. Compare that to $1.4 million salary last year.

Prison life is a far cry from the lifestyles of the rich and famous from her chic Westport address to a federal penitentiary.

Dan Lothian takes a look at where Martha Stewart could be headed next.

(BEGIN VIDEOTAPE)

DAN LOTHIAN, CNN CORRESPONDENT (voice-over): What could be the next address for domestic diva Martha Stewart may be this federal facility in Danbury, just 20 miles north of her Westport, Connecticut home. But legal experts say a world away from her posh lifestyle.

UNIDENTIFIED MALE: There is no VIP section. You had a number. You are an inmate.

LOTHIAN: Sharing a large room like this one with 80 other women, slipping on bunks in small cubicles, doing manual labor.

It is also where other high-profile, white collar inmates have surrendered their privacy, control and freedom as well. Like Leona Helmsley, convicted of mail fraud and tax evasion in the early '90s.

What's believed to be the other option for Stewart is another minimum security facility in Alderson, West Virginia where some big names also spent time from jazz singer Billie Holiday to the women who tried to assassinate President Ford, Sarah Jane Moore and Squeaky Fromme.

From Wall Street to Main Street Martha Stewart came to symbolize success. Her supporters believe she was unfairly targeted. On a fan Web site, prison, they say is not where Martha Stewart belongs. But little will silence the voice of a unanimous jury.

Dan Lothian, CNN, Boston.

(END VIDEOTAPE)

KAGAN: Well, of course we've been looking at Martha Stewart. Her broker Peter Bacanovic will be sentenced later today. But what's become of other key players in this case?

ImClone founder and Martha Stewart's old pal, Sam Waksal is now serving his seven-year prison term. Doug Faneuil, the stockbrokers assistant who ratted out Martha Stewart, admitted lying to investigators, he is to be sentenced next week.

And Larry Stewart, no relation to Martha Stewart, he is the U.S. secret service ink expert. He pleaded not guilty to committing perjury at Martha Stewart's trial. He goes on trial September 20th.

A prison sentence puts Martha Stewart in an exclusive group -- business leaders behind bars.

Our Jen Rogers is in Los Angeles. She has a look at corporate crime and punishment. Jen, good morning.

JEN ROGERS, CNN CORRESPONDENT: Good morning, Daryn. That's right. It is an exclusive club of famous felons from the business world, but it's probably a club you don't want to be a member of.

(BEGIN VIDEOTAPE)

ROGERS (voice-over): They were rich; they were smart; and they got caught -- hard-charging, driven business leaders, masters of the universe one day, inmates the next.

There's Michael Milken, the former junk bond king who served nearly two years for securities law violations.

"WALL STREET," CLIP, TWENTIETH CENTURY FOX: Greed, for lack of a better word, is good.

ROGERS: The inspiration for that famous line from the movie "Wall Street" was Ivan Boesky who also traded in pinstripes for prison stripes for his role in the insider trading scandal.

And Charles Keating, a name synonymous with the savings and loan scandal, served time for convictions that were eventually overturned. He later plead guilty to a bankruptcy charge and was sentenced to time served.

After the excesses of the go-go '80s, the next decade delivered its own batch of bad boys as well.

Rogue trader Nick Leeson, blamed for the collapse of Britain's oldest bank, did time in a Singapore prison. He was released early for good behavior.

Steve Madden is up for an early exit as well. The shoe designer is currently serving a 41-month sentence for securities fraud.

More recently, Alfred Taubman, the former Sotheby's chairman was behind bars for his role in a price fixing conspiracy.

And Sam Waksal, ImClone founder and Martha Stewart friend went from the penthouse to the big house last summer for insider trading.

SAM WAKSAL, IMCLONE FOUNDER: I've made some terrible mistakes, and I deeply regret what has happened. I was wrong.

ROGERS: High-profile businesswomen have also found themselves on the wrong side of the law.

LEONA HELMSLY, BUSINESS EXECUTIVE: The queen of mean herself, Leona Helmsly was convicted for tax evasion.

HELMSLY: Getting caught is my biggest regret. You know it. Come on.

ROGERS: Even the oldest profession has its own CEO star, the Hollywood Madam Heidi Fleiss. She went to prison, too.

(END VIDEOTAPE)

ROGERS: Now, all of people have ended up taking different paths after being released. Michael Milken here, in Los Angeles, has actually started an economic think tank.

Ivan Boesky -- we talked to his lawyer yesterday. He said he said he doesn't know where he is. So obviously he has stepped out of the spotlight.

And then of course there are those that have written books, and there are also television movies that have been made out of the stories as well. So we'll have to see if Martha Stewart ends up serving time what her story will continue to be. As she said on the courthouse steps, I'll be back.

KAGAN: That she did. She said she'll be back and that she is not afraid.

Jen Rogers in Los Angeles, thank you for that.

It'll be interesting to see what Martha Stewart has to say Monday night. She is going to sit down live and talk to our Larry King. She is taking your calls 9 p.m. Eastern, 6 p.m. Pacific. It is her first for and only live interview she is giving after today's sentencing hearing.

We have a lot more ahead on Martha, other news of the day as well. We'll be back after this.

(COMMERCIAL BREAK)

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