A federal jury found Martha Stewart guilty of all four counts
related to her obstruction of a government investigation into
her sale of ImClone Systems Inc. stock in late 2001, giving the
government a big win in its pursuit of white-collar crime.

The jury of eight women and four men took less than three days
to find that Ms. Stewart, 62 years old, guilty of obstructing
the investigation and making false statements.

Ms. Stewart faces about one to two years in prison, under
federal sentencing guidelines, but the judge could order that
she spend some of that time in a halfway house or in home
detention.

Ms. Stewart's former Merrill Lynch & Co. broker, Peter
Bacanovic, who was her co-defendant, was found guilty of four of
the five counts against him. He was found guilty of conspiracy,
making false statements, perjury and obstruction of agency
proceedings. He was found not guilty of the charge of making
false documents.

Ms. Stewart said she would appeal.

"I am obviously distressed by the jury's verdict but I continue
to take comfort in knowing that I have the confidence and
enduring support of my family and friends," Ms. Stewart said in
a statement on her Web site. An earlier version of the
statement, which was posted shortly after the verdict was
announced, and then revised later in the afternoon, began: "I am
obviously distressed by the jury's verdict but I continue to
take comfort in knowing that I have done nothing wrong."

Ms. Stewart's statement continued: "I will appeal the verdict
and continue to fight to clear my name. I believe in the
fairness of the judicial system and remain confident that I will
ultimately prevail.

"I can't tell you how much I appreciate all the words of
encouragement I have received from thousands of supporters. It
is your continued support that will keep me going until I am
completely exonerated."

Each one of the counts against Ms. Stewart carries a maximum
prison sentence of five years.

"Maybe it's a victory for the little guys who lose money in the
market because of these kinds of transactions," said juror
Chappell Hartridge.

Ms. Stewart grimaced upon hearing the verdict, and her eyes
widened slightly. Her daughter, Alexis Stewart, was in tears.
Ms. Stewart left the courtroom with a somber expression. She and
Mr. Bacanovic were ushered by their lawyers and bodyguards into
a side room. She didn't speak to anyone at the defense table
before going to the holding room away from the media. She and
Mr. Bacanovic must report to a probation office within a week
for processing.

Leaving the courtroom, Mr. Bacanovic's mother said, "he lost his
career and his job and he had no motive."

The conviction is a big win for the government, which had been
accused by defense lawyers of overreaching in its attempt to
prosecute a celebrity. Ms. Stewart's attorneys have long
complained that Ms. Stewart was charged because of who she is,
not what she did. They pointed out that Ms. Stewart wasn't
charged criminally with an underlying crime, such as criminal
insider trading. Instead, she was charged with lying about the
reasons for her sale.

Prosecutors also brought a novel charge of securities fraud
against Ms. Stewart, accusing her of trying to prop up the stock
of her own company, Martha Stewart Living Omnimedia Inc., by
making false public statements about the reason for her ImClone
sale. The judge threw out that charge, the most serious one Ms.
Stewart faced, before the jury started deliberating.

The future of Martha Stewart Living, the domestic products and
publishing company Ms. Stewart founded and controls, is
uncertain.

In the hour the stock continued to trade after the verdict was
rumored, shares were up $2.31, or 16%, to $16.34 on the New York
Stock Exchange. The climb began in the space of just a few
minutes, starting at 2 p.m., when TV reports first ran. The
stock had been languishing around $14 most of the day after
closing Thursday at $14.03.

Trading was halted at 3 p.m. just before the verdict was
announced. Almost immediately, indications were that the stock
would plummet when it resumed trading. When it did shortly after
3:30 p.m., it fell almost $6, putting it down $3.17, or 23%, to
$10.86.

Trading volume for the day was 16.7 million shares, more than 30
times greater than the average daily volume of about 474,000
shares over the past three months.

Advertisers are already skittish, hurting Ms. Stewart's
publications, and the company's flagship, Martha Stewart Living
magazine, recently slashed its guaranteed circulation to 1.8
million from 2.3 million because of declining consumer interest.

Still pending are civil charges of insider trading filed by the
Securities and Exchange Commission. The SEC could seek to bar
Ms. Stewart from holding office or being a director of a public
company.

Ms. Stewart's conviction will likely set off a wave of second-
guessing about her legal strategy. Led by renowned defense
attorney Robert Morvillo, Ms. Stewart's team put on a minimal
defense, calling only one brief witness. Ms. Stewart didn't
testify. In his summation, Mr. Morvillo concentrated heavily on
pointing out the lack of evidence and asserted that the
government hadn't proved its case.

The defendants were charged with conspiring to obstruct an SEC
investigation into trading of ImClone Systems stock. Ms. Stewart
says she sold her 3,928 ImClone shares on Dec. 27, 2001, because
she had a pre-existing agreement with Mr. Bacanovic to sell when
the stock fell below $60 a share. The government argued that
agreement was fabricated afterward to conceal that Ms. Stewart
had been tipped by Mr. Bacanovic's assistant about attempted
selling by the then-chief executive of ImClone, Samuel Waksal.
Dr. Waksal pleaded guilty last year to insider trading and other
charges and is serving a seven-year prison sentence.

Ms. Stewart's conviction follows a setback for the government in
the case of former star technology banker Frank Quattrone, who
was also charged with obstruction of justice but not an
underlying crime. In October, a federal judge granted a mistrial
in the case after the jury was unable to reach a verdict. The
former Credit Suisse First Boston investment banker is scheduled
to be retried next month.

Several senior executives implicated in the big wave of
corporate scandals are also on trial, including members of the
family that founded Adelphia Communications Corp. and L. Dennis
Kozlowski and Mark Swartz of Tyco International Ltd.

This week, a federal grand jury indicted Bernard J. Ebbers,
WorldCom's former chief executive, on securities fraud for his
role in the telecom company's $11 billion accounting fraud. And
last month, prosecutors filed a wide-ranging indictment against
Jeffrey Skilling, the former chief executive of Enron Corp.

In the Martha Stewart case, prosecutors relied heavily on the
testimony of Douglas Faneuil, Mr. Bacanovic's former assistant.
He told the court that Mr. Bacanovic had yelled, "Oh my God, get
Martha on the phone," when he informed his boss about the
Waksals selling on Dec. 27, 2001, one day before negative news
sent ImClone stock plunging. Mr. Faneuil then testified that his
boss instructed him to tip Ms. Stewart about that fact, that he
did and that she then sold.

Mr. Faneuil said Mr. Bacanovic at first told him the reason for
the trade was tax-loss selling, then told him there was an
agreement to sell the stock when it dropped below $60. Mr.
Faneuil also said Mr. Bacanovic pressured him to stick to the
$60 account. Mr. Faneuil recounted one telephone conversation in
which his boss said, "The reason for Martha's trade is, we came
up with a stop-loss order if the stock hits 60." Mr. Faneuil
said he was silent.

"OK? OK?" Mr. Faneuil said his boss asked, in a loud voice.

"OK," Mr. Faneuil said he replied, dropping his tone to a near
whisper.

Mr. Faneuil also described a January 2002 meeting with Mr.
Bacanovic at a coffee shop near the office, in which he told Mr.
Bacanovic that he knew what really happened. "With all due
respect, no, you don't," Mr. Faneuil recalled Mr. Bacanovic
saying. "Don't worry, I've got everything under control."

Mr. Faneuil, who was 26 years old at the time of the
investigation, testified that he was afraid of losing his job
and felt "physically" scared of Mr. Bacanovic. Mr. Faneuil
pleaded guilty to a misdemeanor and is cooperating with the
government.

Other witnesses included Mariana Pasternak, a close friend of
Ms. Stewart, who testified that Ms. Stewart told her three days
after her ImClone sale that she knew Dr. Waksal was trying to
sell his stock. Ann Armstrong, Ms. Stewart's personal assistant,
testified that her boss altered a phone message in January 2002
left by Mr. Bacanovic on the day of her stock sale, but
immediately ordered it changed back. The government used the
incident to suggest Ms. Stewart was worried the message didn't
back up her account of the trade.