A Big House For Martha?

It played like a scene right out of NBC's cheesy recent movie, "Martha, Inc." But unfortunately for the domestic diva, this was real life. Martha Stewart, in a crisp gray pantsuit, with a cream raincoat and coordinated umbrella, stepped past cameramen into a courthouse in Manhattan last week to face arraignment on criminal charges, including securities fraud, obstruction of justice and conspiracy. The indictment was the culmination of the investigation into Stewart's sale of 3,928 shares of ImClone, a once hot biotech firm, the day before its price plummeted on news of a setback for a promising cancer drug. Standing before the judge, Stewart pleaded not guilty; her attorneys insist she'll be exonerated. If not, America's Tastemaker could face 10 years in a federal prison.

No matter how the trial goes, Stewart has already paid a steep price. Shares in her company, Martha Stewart Living Omnimedia, have fallen 50 percent since her legal troubles began. While the stock trade that landed her in trouble saved her $45,000, her net worth is down at least $300 million. And though the U.S. attorney decided not to charge her with insider trading--she'll be tried for the alleged cover-up--last week the Securities and Exchange Commission piled on, filing a civil suit alleging insider trading and securities fraud. The charges forced her to step down as chief executive; she's now "chief creative officer." That means until the trial starts--probably next spring--she'll split her time between perfecting brioche and preparing a defense.

As Stewart stares down the smorgasbord of charges, many legal experts say it's possible that she will end up behind bars. At trial, according to the indictment, the government will present a strong circumstantial case using incriminating phone records, altered documents and the testimony of her Merrill Lynch broker's assistant, who's cooperating with prosecutors. The assistant is expected to say Stewart and her broker (who's also facing charges) cooked up a scheme to conceal the fact that she sold her stock upon being told that ImClone's CEO, Sam Waksal (who's already pleaded guilty to insider trading), was unloading shares, too. Prosecutors charge Stewart peddled the same lie to investors in her company to prop up its flagging stock price. (Her side denies she received those tips, and her lawyers say Stewart wasn't peddling a lie but refuting charges leaked by prosecutors.)

If she is convicted, experts say a prison term is a good bet, particularly for the obstruction charge. "Judges are offended by people who attempt to subvert the system," says Gregory Markel, a securities lawyer for Cadwalader, Wickersham & Taft. Sentencing consultant Alan Ellis, coauthor of the "Federal Prison Guidebook," says if she's facing prison time, he'd try to get her sent to the minimum-security prison camp in Danbury, Conn., so she'd be closer to visitors from New York. One small consolation: according to the guidebook, the camp features craft and aerobics classes.

As the trial approaches, Stewart's best hope may lie in landing a sympathetic jury. It could be a tough task: Manhattan jurors have historically taken great glee in bringing down powerful, arrogant women. (Remember Imelda Marcos, Bess Myerson and Leona Helmsley?) Her team's effort to sow the seeds of sympathy has already begun. Hours after her arraignment, marthatalks.com went live. There, in tasteful, lime green typeface, Stewart proclaimed her innocence and asked fans to e-mail their support; the first day, 20,000 e-mails poured in. Her lawyers posted a stinging missive accusing the Department of Justice of targeting her to divert attention from the misdeeds of the "politically connected managers at Enron and WorldCom." For now, the rubberneckers of the world will be left counting the months until The United States v. Martha Stewart gets underway. And NBC will be left hoping there's enough juice left in this story to warrant a made-for-TV sequel.