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PAULA ZAHN NOW

Martha Stewart Sentenced to Five Months in Prison

Aired July 16, 2004 - 20:00   ET

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


(BEGIN VIDEOTAPE)
PAULA ZAHN, HOST (voice-over): A thank you.

MARTHA STEWART: I would like to thank everybody who stood by me, who wished me well...

ZAHN: An apology.

STEWART: 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.

ZAHN: A sales pitch.

STEWART: Perhaps all of you out there can continue to show your support by subscribing to our magazine.

ZAHN: Defiance.

STEWART: What was a small personal matter became an almost fatal circus event of unprecedented proportions. I have been choked and almost suffocated to death during that time.

ZAHN: And a pledge.

STEWART: And I will be back. I will be back.

ZAHN: Tonight, an end and a future for Martha Stewart.

(END VIDEOTAPE)

ZAHN: Good evening. Welcome. Thanks for wrapping up the week with us here. By the time the closing bell rang on the New York Stock Exchange today, stock in the company Martha Stewart founded rose 36 percent. Less than six hours earlier, the perfect homemaker stood choking back tears before a federal judge and received the minimum sentence for lying to investigators about a stock sale. And while she was sentenced to a total ten months confinement, it could be two years before she serves any time at all. The appeals process could take that long.

(BEGIN VIDEOTAPE)

UNIDENTIFIED MALE: Martha!

ZAHN (voice-over): She arrived. She smiled. She kissed.

UNIDENTIFIED MALE: Hold your head high, Martha!

ZAHN: Martha Stewart, about to be sentenced for a federal crime. Inside, Stewart pleaded to Judge Miriam Cederbaum.

"I feel like I've been suffocated to death because of all of this," she said. "Remember all of the good I have done and consider all my suffering." The judge's sentence on hold pending appeal. Five months in prison. Five months home detention, plus a further two years of probation and a $30,000 fine for lying about a stock sale. CNN legal analyst Jeffrey Toobin was inside the courtroom.

JEFFREY TOOBIN, SR. CNN LEGAL ANALYST: The only time there was kind of an audible wince in the courtroom was when Judge Cederbaum said, "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, you know, this anklet bracelet and 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.

ZAHN: If her appeal is unsuccessful Martha could go here. The federal women's prison in Danbury, Connecticut whose most famous inmate to date, Leona Helmsley.

Outside the courtroom, the media waited for Martha to come to the microphone like she was royalty. She came, she was angry.

STEWART: 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!

ZAHN: She was defiant.

STEWART: 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.

ZAHN: She apologized for the situation but not for her actions.

STEWART: 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.

ZAHN: While fans cheered, a suburban whisked Martha Stewart away leaving a traffic jam in her wake. In Stewart's hometown of Westport, Connecticut, neighbors reacted.

UNIDENTIFIED MALE: I think the court did what the court needed to do whether it was Martha Stewart or any one of us.

UNIDENTIFIED FEMALE: I think what she did is wrong but I think she's being used as a pawn for the government, they've made her a scapegoat and things like this goes on every day on Wall Street and, no I don't think she should receive any jail time.

ZAHN: Many Stewart fans agree and have signed an online petition for a presidential pardon.

"Dear Mr. President," it reads, "a terrible injustice has been done to Martha Stewart. Her only real crime was to be too successful."

Fans had hoped the worst would be community service here at the Women's Venture Fund Organization helping women start their own businesses. What's next? Stewart's lawyers will appeal.

WALTER DELLINGER, STEWART'S APPEAL LAWYER: There are at least five issues that we believe are worthy of serious consideration.

ZAHN: For Martha, first stop after court was her publicist's office. However the future unfolds for Martha Stewart, one thing we know, she's a survivor.

STEWART: And I'll be back. I will be back.

(END VIDEOTAPE)

ZAHN: I guess she already is. I'm joined now by four colleagues who watched it all happen today inside the courtroom. Senior legal analyst Jeffrey Toobin who you saw earlier on this evening. Susan Cotliar, correspondent for "People" magazine, Charles Gasparino, senior writer for "Newsweek" and Christopher Byron, columnist for the "New York Post" and author of "Martha, Incorporated." Good to see all of you.

First off, Jeffrey, fair verdict, fair sentence?

TOOBIN: I thought it was right on the money. This is not the crime of the century. This is not a murder, this is not a major theft but she sat in the United States attorney's office, she looked those FBI agents in the eye and she lied repeatedly and then when she got finished, she conspired with her co-defendant, Peter Bacanovic to obstruct justice. This was not a small personal matter. This was a federal crime and she got what she deserved.

ZAHN: There were a lot of people I talked to today, even defenders of Martha, who thought this was a pretty good deal for her.

CHARLES GASPARINO, "NEWSWEEK": Very good. Five months in jail, five months in her home hanging out, making salads, not going out too much. But, listen, I think it's a great deal for her. It's probably a very good deal for the government. They've made a point here, if you lie to us, you're going to jail.

ZAHN: Sharon?

SHARON COTLIAR, "PEOPLE" MAGAZINE: For Martha, it's a blessing because being at home is her haven. She's going to spend her time doing home improvement projects...

ZAHN: You're not serious, are you? Is that really what people are saying that she's going to use this time to paint?

COTLIAR: Bedford is her next big project. She has a lot of projects there and it's a beautiful piece of property and if she's got to spend time in confinement, she'd rather do it at home.

ZAHN: Christopher, let's talk about some of the language she used today. It almost was as though you were looking at seven different personalities of Martha Stewart. There was the apology, a slight bit of contrition and then there was that absolute defiance.

CHRISTOPHER BYRON, "NEW YORK POST": She got as close to the "sorry" word as she could, but she couldn't quite get it out. I think she was really uncomfortable with anything that -- where she's got to admit human failing. She spent her career play acting a role of Miss Perfection and when -- perfectionists can't lie, they can't do all of the kinds of things she needed to apologize for and she had trouble with the words that got her close to it but couldn't get her over the hump.

TOOBIN: Reminded me a little of what Ken Lay did last week where he said he took responsibility but he didn't do anything wrong. It was the same kind of nonacceptance of responsibility in the guys of saying you're sorry.

GASPARINO: I really think this was a low point for her. She so obviously lied. There isn't anybody I think on the planet that buys her story and she got up there and she kind of said, I didn't really lie. This is a personal matter. Highly technical stuff, a circus- like atmosphere. She just blew it off and I think that is a problem for her image going forward.

ZAHN: What was this venom and gore she was referring to?

(CROSSTALK)

ZAHN: You suffocated the poor woman, Christopher.

BYRON: No, I didn't. I just told her story and she didn't want that story out. Now she's got to live with it and she's filling in the blanks for all of us here and she's got to live with this now. The thing that struck me about what she had to say today was she talked about it -- she almost sounded like Teddy Kennedy in Chappaquiddick talking about that thing over there called the incident as if it didn't involve her, you know?

GASPARINO: The big question is is she going to get away with it? Will she be able to remake her image and spin this into some sort of government conspiracy? I don't think so. I think she came across horribly today.

TOOBIN: Although there was something amazing. Did you notice how many times she used the word "love," "beloved," always in connection with her company. Never about a human being but how much she loves the idea of bringing Martha Stewart Living Omnimedia back. I actually thought that was kind of admirable and I thought it showed kind of gumption. ZAHN: That might have resonance with the public.

GASPARINO: Why? Why would that have resonance? Because she's employing people I guess...

(CROSSTALK)

ZAHN: She made a comment about apologizing for losing jobs to people.

GASPARINO: This is a company about knickknacks. She's not exactly saving the world and one of the things that I hated about Bob Morvillo's statements today was she made it sound like this was Mother Teresa. She's brought such wonderful stuff to humanity. She created a company, she created jobs, that's really great but she isn't the greatest thing since sliced bread.

COTLIAR: She has a lot of fans. She has hundreds of thousands...

ZAHN: Tell us a little bit about that and some of those people you talked to today outside the courtroom who thought she got an absolute raw deal. A lot of those people felt that she was picked on because she was a woman, right?

COTLIAR: A lot of people felt that it was a vendetta because she's a powerful woman and they wanted to see her get something less than what she was likely to get under federal sentencing and they wanted to see her not have to pay. She had to pay, but at least it's a palatable sentence for her.

ZAHN: What did you see in her demeanor when you watched her in the courtroom today?

COTLIAR: In the courtroom, she was very emotional. For Martha Stewart, she was emotional. Outside the courtroom, she made her statement. That seemed to be she was feeling relief like now I can get on with my life. I'm going to make a comeback.

(CROSSTALK)

BYRON: Let me just add something to that. I think that her demeanor changed and changed dramatically as soon as she heard, I don't have to go to the joint! As soon as that is taken off the table she's taken the same script that she read in the courtroom...

ZAHN: But she is going to the joint.

(CROSSTALK)

ZAHN: No, no. At least months, maybe years and that will buy her some time to figure out a no excuse. What I think is important is as soon as she learned that I'm not going from here directly up to Danbury, this gave her some maneuvering room and when that happened, I think the clouds parted for Martha and she went downstairs and took the script that she was reading with this (UNINTELLIGIBLE) of contrition in the courtroom, she went downstairs and read the same thing again and then started ad-libing on it.

ZAHN: I need a quick yes or no from all of you whether you think she can ultimately rehabilitate herself and then we'll come back and give you a chance to support that answer.

TOOBIN: Not to where she has been.

GASPARINO: For a change, I agree with him.

ZAHN: Sharon?

COTLIAR: I don't think she's looking for rehabilitation.

ZAHN: You didn't answer the question.

COTLIAR: I know!

ZAHN: Yes or no. She's not sure. Christopher?

BYRON: N-O. No.

ZAHN: All right, you all. Please stick around. We're going to join you on the other side of the break. When we come back, Martha's friend and former stockbroker Peter Bacanovic learns his fate. We'll be right back.

(COMMERCIAL BREAK)

ZAHN: Welcome back. There was another major sentencing today, one that may have gotten a bit lost in the buzz about Martha Stewart. Peter Bacanovic, Martha Stewart's friend, former stockbroker and co- defendant will also spend time behind bars. Bacanovic, like Stewart, faces five months in prison, five months home detention.

He will also serve two years probation and pay a $4,000 fine. After hearing his sentence, Bacanovic told the judge, quote, "I deeply regret the pain I have caused. This has been a horrible ordeal for my family." He made no comments whatsoever outside the courtroom.

You may remember the prosecutor said Bacanovic ordered his assistant to tell Stewart that ImClone CEO Sam Waksal was selling his stock. They say Stewart dumped her own ImClone shares shortly after receiving the tip. In March a jury found Bacanovic guilty of conspiracy, obstructing justice, and making false statements.

Joining me once again, senior legal analyst, Jeffrey Toobin, "People" magazine Sharon Cotliar, "Newsweek's" Charles Gasparino, author and "New York Post" columnist Christopher Byron.

Sharon, were you surprised by this sentence?

COTLIAR: He got what Martha got essentially so it's to be expected the judge meted out a similar sentence.

ZAHN: Does anybody here feel sorry for Peter Bacanovic? GASPARINO: I think he was more classy than Martha. He basically said I'm sorry and he just left. He didn't hold some stupid press conference where he had to say how great he was or keep buying my products or hire me as your broker or anything like that.

ZAHN: But he did break some laws.

TOOBIN: And he started this whole thing. It was his betrayal of his duty as a stockbroker telling his assistant to tell Martha Stewart that Sam Waksal was selling the stock. That was the betrayal that started the whole chain.

GASPARINO: Can you imagine having Martha as your client?

(CROSSTALK)

GASPARINO: And she probably, though, was busting his chops every minute of the day on it. I mean, if she would make a call like this...

ZAHN: Well, not like other wealthy clients to be perfectly fair.

GASPARINO: No, probably unlike many wealthy clients. I mean, what wealthy person cares about $40,000 worth of stock? I don't know many that do that.

ZAHN: Let's talk now about the rehabilitation process we started seeing surface outside the courtroom today and perhaps a little inside the courtroom. What do you see as you look into your prism?

BYRON: I think that's going nowhere. I think that over time she's going to become marginalized as a cult figure.

ZAHN: Cult figure?

BYRON: Yes. And I think you're going to have a smaller and smaller little knot of people following her in her adventures through life and they're going to be more and more shrill and supportive of her and angrier at those who criticize her. She's going from being a chapter in history to a footnote to the chapter and I don't see how you turn that one around.

ZAHN: Sharon, do you buy that, because you saw a lot of her supporters.

COTLIAR: No. She's still...

ZAHN: They are very devoted to her.

COTLIAR: They're are very devoted to her and she's still an American icon. They still buy into what it is that she has created and they're going to give her credit for that even if she's going to prison.

TOOBIN: It's also a little tough given her age. She is going to be almost 65 years old by the time the legal process is over here. It's very tough to start remaking yourself at that age. The world doesn't sit still and wait around. There are other magazines, other stores. I just think it's going to be very tough to recapture anywhere near where she was.

GASPARINO: I don't think you can maintain a fairly large public company with a cult following. I don't know how well a convicted felon sells across America. She is always going to keep this core group of people who love her, who show up to the court and praise her. But for the general public, I don't know if that...

ZAHN: Explain to me then why her stock went up today.

(CROSSTALK)

GASPARINO: That is speculators. They're bottom fishing.

ZAHN: You don't think that's going to hold?

GASPARINO: No.

BYRON: I think this is terrible for her company stock.

(CROSSTALK)

GASPARINO: There is very -- it's very light trading on a Friday in the summer. There is a lot of reasons why this might go up so high today but it didn't go up that high. It went up to $10 a share. It's way off its all-time highs.

ZAHN: You look at K-Mart sales and they're still keeping stuff stocked. They believe their buyers and consumers are out there.

TOOBIN: They're good products. That's what is so maddening about this. Her magazine is an excellent magazine. Those products at K-Mart are excellent products. I disagree with you. I thought Robert Morvillo was very persuasive in saying that she has done good things with her life and that's why it's so maddening that she threw it all away for this arrogance and stupidity.

GASPARINO: He didn't she did good things. She said she did wonderful, great things, transforming things which I don't believe she did.

ZAHN: She didn't transform your kitchen?

GASPARINO: No. I didn't even know who she was really until I started covering this story until two years ago. She is not Mother Teresa.

ZAHN: I want to share with the audience now a part of a letter that Martha Stewart wrote to the judge in advance of today's sentencing that might give all of us some insight as to what she's thinking and feeling right now and perhaps not, Christopher Byron.

Quote. "Perhaps in my enthusiasm and in my quest for jobs well and quickly done I did not always take time to pat backs or offer thanks for good work. I have been extra hard on myself and my work ethic and performance and I sometimes forgot that others need a bit more praise that I remembered to give. I am sorry for that and I wish I could always be polite, humble, respectful, and patient."

ZAHN: Do you buy that?

BYRON: I was trying to count how many times she said "I" there. I think maybe. I don't know. In the end, this is all just part of her act. What she wants to do. She's trying to do the same thing that Mike Milken did when he came out, the convicted junk bond guy from Drexel Burnham, rehabilitate herself. There were a million letters that went to the Judge Kimba Wood in that trial, and this is the same situation here only this one is written by her.

TOOBIN: I have spent two years saying to Byron and Gasparino you were too tough on her and she were -- 42 they were right and I was wrong. I just don't -- this seems so utterly insincere to me. And her whole act today seemed more bizarre than anything.

ZAHN: Sharon, you get the last word.

COTLIAR: I think they're wrong. I think she actually is sorry this happened to her. Is she apologetic? I don't know, but I think she's sorry and she feels like she'd like to get on with the next chapter.

ZAHN: That was the last word from the women. You get a brief final word.

BYRON: She's sorry she's going to jail and that's about it.

ZAHN: And wouldn't we all be, too.

TOOBIN: You bet!

ZAHN: All right thank you, panel: Jeffrey Toobin, Sharon Cotliar, Charles Gasparino, Christopher Byron, thank you all for joining us tonight. Have a good weekend.

Coming up, someone who has known Martha Stewart for almost 25 years. A conversation with one of her closest friends. We'll be back in a moment.

(COMMERCIAL BREAK)

ZAHN: Martha Stewart is letting people just know how she feels about her trial and sentencing. Outside the courtroom today, she said the case had become an almost fatal circus event of ridiculous proportions. On her Web site, she called her sentence horrendous, but added that it is not unexpected.

And in an interview tonight for ABC News "20/20" Stewart had this to say to Barbara Walters.

(BEGIN VIDEO CLIP)

BARBARA WALTERS, 20/20: This morning, did Judge Cederbaum destroy your life?

STEWART: Well, that's still yet to be seen, because going to jail is something that I don't relish, I don't look forward to, I don't fear.

(END VIDEO CLIP)

ZAHN: Joining me now from Nashville, Tennessee, one of Martha Stewart's closest and longtime friends, Sally LaGrone. Good to see you, Sally, welcome.

SALLY LAGRONE, MARTHA STEWART'S FRIEND; Thank you, Paula.

ZAHN: First of all, when you heard your dear friend, Martha Stewart, talk about the prospect of going to jail, what went through your mind?

LAGRONE: Well, it just makes me really sad. Any time you're in a situation with a good friend who is in a bad situation, you always feel for them. And it's a very sad time for all of us who are her close friends.

ZAHN: I know you had time to spend a little fraction time with her on the the phone the other day, but got two long visits with her in May. Did she express her feelings about the prospect of going to prison?

LAGRONE: Well, she was not looking forward to it, but we had, you know, we had a really good conversation about the realities of things.

ZAHN: What did she tell you?

LAGRONE: Basically, that she did not look forward to going to jail, she didn't want to go, and that she thought there could be other ways she could have been sentenced that would be more productive.

ZAHN: Was she hopeful that that was going to happen, but do you think she was pretty much resigned to the fact she would spend at least some time in prison?

LAGRONE: I think she was hopeful that some alternatives would be considered.

ZAHN: Let's talk about the lobbying effort that was going on behind the scenes to try to convince the judge that she should not go to prison. I know you wrote a heartfelt letter to the judge as well. If you could share some of the points you were making, so we can understand what that effort was all about?

LAGRONE: What I'll do, Paula, is read the last two paragraphs, how is that?

ZAHN: Please.

LAGRONE: Because what I did in my letter, was I feel it's a very personal and private letter to the judge, but I talked about my experience with Martha and the years that I've known her.

But I ended it by saying, "over the last two years, I cannot begin to tell you how many people have come up to me to tell me what a positive influence Martha has had on them, how much they have learned from her, how much they enjoy her books, magazines, television shows, products and how loyal they are to her. I have not had one negative comment. It is always when you talk to Martha, please tell her I am thinking about her, she has brought so much to me.

Judge Cederbaum, you have a very important decision to make. I hope my letter will help you see all of the positives that Martha has brought to so many and to see the person I know Martha to be. Whatever decision you make, I ask that you consider Martha's talents and abilities and use them to benefit others, rather than to just punish Martha. That would be a winning situation for so many."

ZAHN: And apparently, the judge did take seriously the letters he received from friends of Martha, such as yourself, and she weighed that when she thought about the sentencing guidelines. Let's talk a little bit, though, as a friend, how disappointing it was for you when you learned, in fact, that she had lied to federal investigators.

LAGRONE: Paula, I've never broached that with Martha and that is not something I'm going to broach now.

ZAHN: OK. So you don't even want to talk about any level of disappointment you might have had?

LAGRONE: Truthfully, Martha is my friend and I'm not judging her. A jury judged her, but I don't.

ZAHN: Let's talk about what you think is going to happen to her if her appeal fails and she ends up going to prison. How do you think she will use that time?

LAGRONE: I think Martha will use that time beneficially, I really do. She's a very strong person. I think that she will face whatever she has to face. She will get through it. And I think Martha, at this point in time, is also looking to a future beyond all of this.

ZAHN: And what do you think that future might hold in store for her?

LAGRONE; I think she really wants to go back to work. She's the one who built this company. She's the one whose ideas and visions created it. And that's still her focus. So I think she's looking forward to the day that she can be back in control and in charge and do what she does best.

ZAHN: So, then you weren't too surprised to hear her type her product today outside the courtroom when she encouraged people to go ahead and buy her magazine, even shortly after she had just been sentenced to some time in prison?

LAGRONE: I think that's Martha's way of just asking people to continue to support her.

ZAHN: And we thank you for joining us tonight to share some of your thoughts with us this evening. Thank you so much, Sally.

LAGRONE: You're very welcome.

ZAHN: And you're going to have a chance to talk with Martha Stewart on Monday when she joins Larry King for her first and only live interview since her sentencing. Martha Stewart takes your calls. CNN's LARRY KING LIVE this coming Monday, 9:00 p.m. Eastern.

Martha Stewart has vowed to make a comeback. Up next, how that might happen, if it will happen. And how she could possibly revive the Martha Stewart brand.

(COMMERCIAL BREAK)

ZAHN: Martha Stewart promised today that she would be back. But it's a little more complicated than just saying so, because so much of the Stewart empire is based on her name and her image.

Here is Tom Foreman.

(BEGIN VIDEOTAPE)

TOM FOREMAN, CNN CORRESPONDENT (voice-over): As Stewart's sentence came down, her stock went up, rising 20 cents a share immediately. And based on her reported holdings in her company, that means she likely made $5 to $6 million just walking to the courthouse steps.

STEWART: 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.

FOREMAN: But how much staying power the Martha Stewart empire has is questionable.

Big names have long generated big money in America. And at her height, everything Stewart touched went gold. The day her stock debuted, she became an instant billionaire.

Since then, however, her legal troubles have seen her magazine and her TV show and almost everything Stewart plunge in value.

PROF. DAVE REYBSTEIN, UNIVERSITY OF PENNSYLVANIA: The danger is exactly what it is that we witnessed, is that as you rise with the fame and notoriety of the particular personality, of the company, there is also the risk that you fall with the individual that you're associated with.

FOREMAN: Newcomers will also make a comeback for Stewart tough. Katie Brown, B. Smith, Susie Kualo and Chris Madden have all established their own home entertainment industries.

(on camera) Competing with that will likely mean Stewart's company must reinvent itself and without its iconic leader.

PROF. STEPHEN GREYSER, HARVARD BUSINESS SCHOOL: The repairing has to happen across a broader landscape than just Martha Stewart, the person. Martha Stewart, the person, isn't going to be around that much and isn't going to be visible that much.

FOREMAN: Certainly, Stewart is not ready to give up the limelight, and business experts say her resources must keep her in the fight.

STEWART: And I'll be back.

FOREMAN: After all, her stock kept rising until the closing bell, and based on her own company's stock reports from this past spring, that means on maybe the worst day of her life, Martha Stewart made more than $90 million.

(END VIDEOTAPE)

ZAHN: That's our Tom Foreman reporting.

Joining us now to discuss Martha Stewart's chances for a comeback here with me in New York, Robert Passikoff, a veteran in the field of branding products, and from Miami tonight, Jeffrey Sonnenfeld, president and CEO of Yale's Chief Executive Leadership Institute.

Good to see both of you. Welcome.

JEFFREY SONNENFELD, PRESIDENT/CEO, YALE'S CHIEF EXECUTIVE LEADERSHIP INSTITUTE: Thank you.

ZAHN: So, Barry -- excuse me, Robert, let me ask you this. We just heard Martha Stewart saying, "I will be back." The question is will her brand survive her invisibility?

ROBERT PASSIKOFF, PRESIDENT, BRAND KEYS: Well, it doesn't look like it. The difficulty is that you have a brand that's 100 percent invested in a human being. And when she was indicted the brand was indicted. When she was convicted, the brand was convicted. And, today, when she was sentenced, the brand was sentenced, as well.

There's a whole aspect that goes behind quality sheets and autumnal palettes of colors.

ZAHN: You're not calling it dead on arrival, though?

PASSIKOFF: Oh, no. But it's an entirely different competitive set that she now faces, now that the magic is gone, in terms of what she brought to the products and the fact that, as your commentator pointed out, the competitive landscape has changed dramatically in two years.

ZAHN: Fiercely competitive. So Jeffrey, do you have faith that Martha Stewart can put this all back together, no matter where she's spending time? SONNENFELD: Well, I agree to Robert to a certain extent it's not a slam-dunk. I give it a higher probability than Robert would and a higher probability than virtually your entire opening panel.

If you -- you look at that panel, that's what we saw on television throughout today, is strictly discussions among journalists and attorneys. These are people that are not engineers, bus drivers, nurses, schoolteachers. Engineers are, you know, executives, CEOs.

When we asked the CEOs at our Chief Executive Institute what they think, it's consistently 75 to 80 percent think that it was unjust to go after her.

But the people who buy it aren't the people we saw on your opening panel. I doubt many of those people have been shopping for Martha Stewart.

ZAHN: Well, let me ask you this then, Jeffrey. Are you saying that when someone goes to K-mart and they think about buying more expensive sheets than they usually do, the product isn't compromised at all by what Martha Stewart is going through?

SONNENFELD: They care about the threads per square inch, the quality of the products. They don't care about the threads of her story.

I think that the journalists and the attorneys are filled with a certain expression called schadenfreude, almost glee over the fall of somebody. There's some envy tied in with that. There's resentment about her for other dimensions.

But it's almost that her revival will disprove what they've been saying for the last two years. The fact that she has this strength in the buying public has falsified what many of the branding experts have been telling us what the products would be like today.

The fact that companies like Scott's, companies like Sherwin- Williams. I mean, the people who partner with Martha Stewart are seeing very strong response in the buying public.

Who got nervous? Ad agencies, people very similar to the attorneys and journalists we just had on. Not the buying public. In fact, if anything, there's almost a certain sense of martyrdom that many people feel, that there's something here.

ZAHN: OK.

SONNENFELD: Now there -- there certainly is a set of people confused that think that she was somehow accused of securities fraud. She wasn't. None of these charges were that at all.

ZAHN: All right.

SONNENFELD: And there's a lot of education she has to work from.

ZAHN: Let's come back to what he -- Jeffrey is just saying about the buying public perhaps not being as turned off by all of this as other sectors of folks we've heard him talk about.

PASSIKOFF: Well, that's just not -- That's just not true. The Brand Keys Custom Loyalty Index that has tracked Martha since 2001, when her brand was one of the strongest and most profitable brands around, tracks very closely only consumer reactions and has indicated that there have been defections.

I mean, the test is in the balance sheet. Her products and services that she offered up are still as good as they ever were.

SONNENFELD: The balance sheet is actually pretty good.

ZAHN: Yes, the sales at K-mart haven't fallen off.

SONNENFELD: There's plenty of cash there. But on the income statement, we're not saying that revenue hasn't been hurt. Definitely it has been hurt.

But many people said the brand -- many of your colleagues, Robert, said the brand would be dead. It's alive; it's not dead. It's got very strong -- if you look at -- you say the brand was indicted.

Steve Madden, as you well know, a 41-month prison term for tax issues. And yet the Steven Madden brand, a very talented designer, his company thrives.

Now he's not in an executive role. He has a creative inspiration on the firm, but they're in 2,500 of the toniest stores in the country. Their biggest lines are in the children's area. And he's got 72 of his own stores doing very well. The company is flourishing.

ZAHN: Robert, isn't -- isn't the landscape littered with people who have come back, maybe not from identical situations as Martha Stewart's, but have certainly come back from pretty seriously...

PASSIKOFF: Sure, but it's a different situation. I mean, the examples that he's giving in terms of the paints and Steve Madden really don't apply in this case. Those are names on labels. She didn't have a label.

In fact, Sharon Fitzpatrick has been spending the past few months desperately trying to migrate away from the human brand to a label. People don't hate labels. People don't resent labels. They resent people.

And what we're seeing is a human brand, 100 percent invested in a woman who lost about 30 percent of...

SONNENFELD: Gosh, you know, if I could get in on this (ph).

PASSIKOFF: ... the value of the brand was in terms of actual trust.

SONNENFELD: You take a look at her -- Robert, her new brand.

PASSIKOFF: Excuse me. That's why...

ZAHN: Let's let Robert finish and then you'll get the last word, Jeffrey.

SONNENFELD: Sure.

PASSIKOFF: That's exactly why what you're seeing is a resentment regarding what's gone on over the trial is not one of consumers looking for punishment. They were looking for closure and they were looking for some contrition to bring back the trust.

ZAHN: All right, Jeffrey, you get the final word and what you think Martha Stewart needs to do? If her appeal fails, she ends up in prison, what she does to reengineer this company and the brand.

SONNENFELD: We don't need -- What we're looking for is redemption. We're not looking for contrition. We don't need her crying on the stage like Jimmy Swaggart. She showed vulnerability. She showed shame. She showed empathy for others who suffered innocently in the shrapnel of her downfall, the employees who lost their jobs, investors.

But she also showed a mission going forward. What the attorneys and consultants who looked at this that have really never built a business don't understand is that on the courthouse steps, she was giving her own mission of where this company is going and where -- where there's a path going forward for her followers to excite people. She wasn't out there with crass commercialism. That was a sense of a future.

ZAHN: No crass commercialism saying "buy my magazine"? Maybe that could be more...

SONNENFELD: The magazines don't feature her name. "Everyday Food," she's not on it.

And you know, Robert, she's up to almost a million subscribers on that and her name is not even anywhere on it.

ZAHN: All right. Gentlemen, we've got to leave it there.

PASSIKOFF: That's the reason for the success.

ZAHN: Gentlemen, love to see you come back six months from now to see how accurate either one of your arguments were. Robert Passikoff, Jeffrey Sonnenfeld, thank you both for your time tonight.

PASSIKOFF: Thank you.

ZAHN: A comeback remains to be seen, but Martha Stewart's immediate future is more uncertain. Inside Danbury Prison, right after this.

(COMMERCIAL BREAK)

ZAHN: When the judge sentenced Martha Stewart today, she granted a defense request to recommend that Stewart serve her time near her home in Connecticut.

Our Jason Carroll takes a look at the federal prison that could be Stewart's address for five months.

(BEGIN VIDEOTAPE)

JASON CARROLL, CNN CORRESPONDENT (voice-over): This could very well be the place Martha Stewart calls home for five months. It's the Danbury Federal Correctional Institution in Connecticut, a women's minimum security work camp.

STEWART: I'm used to all kinds of hard work, as you know, and I'm not afraid. I'm not afraid whatsoever.

CARROLL: Joyce Ellwanger says it's not the work Stewart should be concerned about.

Ellwanger served six months at the prison on a trespassing conviction.

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.

CARROLL: Stewart will have no say in where she sleeps on these prison bunk beds in a dormitory style room. No say in what she wears, a khaki uniform, one nightgown. No say where she washes, a community bathroom.

And no say in what type of work she does. Prison spokesman tells me inmates can request a work assignment but are assigned where they're needed.

UNIDENTIFIED MALE: They work at jobs like cutting grass and in food service, sanitation jobs. And are responsible for participating in structured programs while they're in those facilities.

CARROLL: Stewart will work five days a week, seven and a half hours a day for less than 50 cents an hour. Stewart has worked much longer and harder days, albeit for much more money.

She'll have to get used to being surrounded by all types. Most of them have committed white collar crimes, and more than 60 percent here are drug offenders.

One of the prison's senior correctional officers says the prison is overcrowded and understaffed, and that makes him concerned for her safety.

BEN MONAGAN, FORMER GUARD, DANBURY PRISON: If you don't have the staff necessary to watch the amount of inmates that are there, you're going to have less supervision of inmates, which can lead to something happening. CARROLL: Following Stewart's five-month sentence, five months of house arrest. She asked that it be served at her home in Bedford, New York. While under certain circumstances, she'll be able to leave home, she'll always have to wear an ankle monitoring device.

(END VIDEOTAPE)

ZAHN: That was our Jason Carroll.

Joining us now, the man who worked as a sentencing consultant for Martha Stewart's defense team. Herb Hoelter is co-founder and CEO of the National Center on Institutions and Alternatives. He's worked to get reduced sentences for a number of high profile clients, including financiers Michael Milken and Ivan Bosky.

Welcome. Good to see you tonight.

HERB HOELTER, CO-FOUNDER/CEO, NATIONAL CENTER ON INSTITUTIONS: Thank you.

ZAHN: You think about someone spending five months in prison. You think this is actually a pretty good outcome for Martha Stewart?

HOELTER: I think we would much have preferred not to have any sentence of incarceration and have her serve her sentence in the community. But all things considered, the fact that the judge imposed the sentence at the very lowest end of the guidelines that she could and gave her also five months of home confinement is as good as an outcome as we could have had if the judge stayed within the box of the guidelines.

ZAHN: What do you think it reflects?

HOELTER: I think -- well, according to the judge, it reflected a lot of circumstances. It reflected the fact that a lot of punishment had already occurred in this case, and she recognized that in her decision.

I think it also reflected the fact that she found that the 1,500 letters submitted on Martha Stewart's behalf showed her as a person who had contributed to the community, to a lot of individuals.

And it also reflected the fact that some sentence of incarceration has to be handed down in a case that involved the administration of justice.

ZAHN: You were the one behind the scenes who was recommending alternative sentencing for Martha Stewart. Do you believe that had any impact on what the judge ultimately decided?

HOELTER: I don't think the judge used the community service program as a mitigating factor in this case. But I think the rest of the circumstances that we helped to develop, her background information, the -- her community service background and the history of her community service. I think when a court is sentencing, they take into account a variety of factors. And I think that in this case, there were a whole host of issues that did affect the sentencing.

ZAHN: And, yet, the sentence didn't reflect any sort of mandatory social service work. And, yet, you think that actually helped reduce the length of the overall prison sentence?

HOELTER: It might have. It might have, and I think that, you know, it should have included something like that.

I mean, our goal over the past 20 years has been to try to get judges to reflect social restitution in sentences and let the community benefit from all of the anguish of a case like this.

I think, you know, her doing five months washing pots and pans at Danbury is a waste of time. And five months in a community program working full-time could have been a much better outcome.

ZAHN: What do you think her life will be like there?

HOELTER: I think it will be the same as most other federal inmates: mundane, boring, wasteful.

We advise people going into federal prison to use their time as wisely as possible, to do the job that they have to do within the institution and then to read and to exercise and to write and to get your life back in order.

Because when you go to a criminal sentencing or report to a federal prison, you're usually at the bottom of your game. And we advise clients use it as an ability to begin to restore your life, and I think that's generally helpful advice.

ZAHN: Herb Hoelter, thank you.

HOELTER: Thank you very much.

ZAHN: Thank you for joining us tonight. Appreciate it.

And in just a moment, all caught up in the chaos at the courthouse.

(COMMERCIAL BREAK)

ZAHN: From indictment to trial to verdict and, now, sentencing, the Martha Stewart case has been a textbook example of a media circus.

Jeanne Moos takes us through today's edition.

(BEGIN VIDEOTAPE)

JEANNE MOOS, CNN CORRESPONDENT (voice-over): For a woman as buttoned up as Martha Stewart, she sure has some colorful fans.

UNIDENTIFIED MALE (singing): Free Martha. UNIDENTIFIED MALE: Free Martha! Free Martha!

MOOS: The choppers were circling, ready for the obligatory O.J.- esque car chase when Martha departed. Members of the press were jumping, ducking and dodging traffic to get the story, while the "Save Martha!" Web site daily alert was at its highest level, fuchsia.

UNIDENTIFIED FEMALE: Why should Martha Stewart be in jail, then? Why? Jail? Bail, no jail for Martha.

MOOS: But jail it was, despite dozens of e-mailed prayers to the Save Martha web site: "Please, dear God, give this merciless judge a heart for one day of her life."

(on camera) Is this the end of the save Martha web site?

JOHN SMALL, FOUNDER, SAVEMARTHA.COM: Oh, my God. Well, it's not the end of Martha.

STEWART: I will be back.

MOOS (voice-over): Back from a fate described by the press in gruesome detail. Martha can expect to get the cell's bottom bunk, because women older than 50 do not sleep in upper beds.

SMALL: Five months in jail is five months too many. Five months house arrest might not be such a bad thing. Imagine what that house is going to look like when she gets out of it.

UNIDENTIFIED FEMALE: Save Martha!

MOOS: Save Martha may change to Pardon Martha. Fourteen thousand signatures have been collected asking for a presidential pardon.

Martha thanked supporters.

STEWART: Like these lovely people over here.

MOOS: Lovely people like Linda Smith, upset over what she called the double standard Martha faced, for instance, when the press focused on the $6,500 Hermes bag Martha once carried into court.

UNIDENTIFIED MALE: Did your media tell me what suit Ken Lay had? Was it an Armani or a Calvin Klein? I didn't hear that! You helped nail Martha!

MOOS: The press itself got nailed for using frantic signals to beat the competition back when the guilty verdict came down four months ago. Red meant guilty.

JON STEWART, HOST, "THE DAILY SHOW": Look at me I'd Edward R. Murrow.

MOOS: Well, despite taunts from comedians, guess what?

(on camera) You did do a signal? Well, no, I think we got it.

(voice-over) The red scarf was waving once again. This time, red meant prison. And though Martha wouldn't wear this scarf in the wrong season, it worked for Fox News.

UNIDENTIFIED FEMALE: And Martha Stewart is going to prison for five months.

MOOS: Journalists struggled to convey the emotion Martha displayed in a courtroom without a camera.

UNIDENTIFIED FEMALE: She was crying pretty much the whole time. She was sniffling.

MOOS: Martha might approve of the earring entrepreneurs.

UNIDENTIFIED FEMALE: These are our Free Martha earrings.

MOOS: But we think she'd draw the line at the ball and chain handbag.

(on camera) May I?

UNIDENTIFIED MALE: Yes. It's a ball and chain. It looks well on your ankles or over your shoulders.

MOOS (voice-over): An artist who calls himself Itsy-Bitsy is auctioning several on eBay, starting at $150 each. If you want one, don't drag your feet!

UNIDENTIFIED MALE: It really should be worn on the ankle anyway.

(END VIDEOTAPE)

ZAHN: That was our own Jeanne Moos. We're told she's not wearing that this evening.

We'll be right back.

(COMMERCIAL BREAK)

ZAHN: Welcome back.

A reminder before we go: Martha Stewart takes your calls on "LARRY KING LIVE" this coming Monday night, July 19, at 9 p.m. Eastern Time. It will be her first and only live interview since her sentencing.

And we want to thank you all for dropping by this evening. On Monday, a woman who carries the notorious last name bin Laden, Carmen bin Laden, the sister-in-law of the world's most wanted man.

Have a great weekend. Thank you for dropping by tonight. Good night.

TO ORDER A VIDEO OF THIS TRANSCRIPT, PLEASE CALL 800-CNN-NEWS OR USE OUR SECURE ONLINE ORDER FORM LOCATED AT www.fdch.com


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