Martha's team has a secret plan
(FORTUNE Magazine) – Is there any way to save Martha from the slammer?
While Stewart's lawyers are trying to get her a new trial--citing evidence that one juror lied to get on the jury--they're plotting another way to save the distressed diva from doing prison time. They plan to use a case involving a convicted steel executive to coax Judge Miriam Cedarbaum into cutting Stewart a break at her June 17 sentencing.
Federal guidelines bind Cedarbaum to sentence Stewart, convicted of lying to investigators about her ImClone stock sale, to ten to 16 months in prison, experts say. But United States v. Milikowsky could allow her to grant Stewart a so-called downward departure. Dan Milikowsky is a Connecticut man who ran several small steel-related businesses and was convicted of price fixing in 1994. Though he was due to serve eight to 14 months in prison, a court ruled that incarceration would cause "extraordinary hardship" to his 175 employees. Milikowsky got two years' probation and a $250,000 fine instead. The strategy also worked in 1998 for a mini-Martha named Marianna Somerstein, a New York caterer convicted of conspiracy and mail fraud. A judge ruled that her fragile company and her "horrendous hardship" (she was a Holocaust survivor) made prison untenable. "I'm watching with great interest. It's like deja vu!" says Stuart Somerstein, Marianna's husband and business partner, about the Stewart case. He went to prison while Marianna got three years' probation and kept the company running.
Does Martha stand a chance with Milikowsky? Yes, but it's a stretch, say legal experts. While Milikowsky's steel businesses were on the financial brink--and as dependent on him as Somerstein Caterers was on Marianna--Martha Stewart Living Omnimedia (MSLO) is well capitalized. It has $169 million in cash and no debt. "That's the glaring distinction" between Stewart and Milikowsky, says Stan Twardy, a former U.S. Attorney who practices criminal defense law. To be sure, MSLO is no longer a growth company: As advertisers fled, revenues contracted to $245.8 million last year, and MSLO lost $2.8 million. Layoffs are likely in its TV arm since CBS canceled Stewart's show. But product sales at Kmart, the main source of income, are holding up well. Kmart and new products like Everyday Food magazine should keep MSLO limping along. "We have evolved [MSLO] to the point our products don't have to be Martha," CEO Sharon Patrick said in the year-end earnings call. People in Stewart's camp say that Bob Morvillo, her lawyer, has been frustrated at the company's unwillingness to talk up the importance of its founder, former CEO, and 61% owner.
Given the Milikowsky strategy, the smartest thing Stewart, 62, can do now is to look essential, if not indispensable, to her company. People close to her say she's been working 80 hours a week and going to MSLO's Manhattan offices almost every day. Despite all she's lost--her title (she's now founding editorial director), her board seats, $250 million in net worth, her reputation--colleagues say she acts like the same stalwart Martha. But her strength may be her enemy now. If Stewart and her company were less durable, she'd have a far better chance to remain a free woman.