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Signing of Iraqi Interim Constitution Delayed; High Tech Spy Gear Used to Track Osama; 9/11 Commission Schedules Hearings; Girl Presumed Dead to be Reunited with Mother; Martha Stewart Jury Focuses on Perjury; Gas Prices Rising

Aired March 05, 2004 - 13:00   ET

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

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


KYRA PHILLIP, ANCHOR: Democracy delayed in Iraq. A last minute hitch holds up an historic moment indefinitely.
The hunt for bin Laden. Will a new round-the-clock search cast a net that finally snags the al Qaeda leader?

A cop's routine traffic stop turns into a wild ride. You'll hear from him about how it all went down.

LUZ CUEVAS, MOTHER OF DELIMAR VERA: I'm so happy they found my daughter.

PHILLIPS: She waited six years. A mother finally meets the daughter that police thought had died.

From the CNN Center in Atlanta, hello, everyone, I'm Kyra Phillips. Miles is off. It's March 5. CNN's LIVE FROM starts right now.

The stage is set, the pens are poised, the whole world's watching and nobody's signing.

An interim Iraqi constitution was supposed to be signed hours ago by the 25 members of the Iraqi governing council. The "T's" were crossed, the "I's" were dotted Monday. But that was Monday.

Today, the Shiites changed their tune, setting off a chorus of complaints, CNN's Ben Wedeman is watching and listening -- Ben.

BEN WEDEMAN, CNN CORRESPONDENT: Yes, Kyra.

Coalition officials now say the chances that this interim constitution will be signed tonight are slim.

Apparently, Shiite members of the governing council have raised objections over a clause in this interim constitution that would have essentially granted three Kurdish provinces in the north veto power over a -- rather, a permanent constitution that would have been voted upon in a referendum later, rather early next year.

Now, according to a coalition spokesman, Dan Senor, at this point, the coalition is going to let the Iraqis work out this problem.

(BEGIN VIDEO CLIP) UNIDENTIFIED MALE: This is an issue they're working through. And in fact, Wolf, the posture that Ambassador Bremer has taken is one of real sort of hands off. He is not forcing a resolution; he is observing.

He believes that in four months, we on the political side of the occupation are going to be gone. And Iraqis are going to have to deal with these issues themselves. Iraqi political leaders are going to have to work with one another. And they have to get used to it now.

So he has now said, "I'm not going to force you to the table. I'm going to let you work through it yourselves. You've got to get used to it." That's exactly what's happening.

(END VIDEO CLIP)

WEDEMAN: And this certainly is, Kyra, a very fascinating spectacle for Iraqis.

Of course, it was only a year ago that Saddam Hussein was certainly in power. And back then, you never would have seen any sort of public disagreement on any matter within the ruling elite that Saddam headed. Certainly, anybody who did raise any sort of public objection would have probably paid a very high price.

Now this interim agreement, which is actually called the temporary administrative law, was supposed to be signed into effect on Wednesday, but because of the Tuesday suicide bombings, which left more than 180 dead in Baghdad and Karbala, it was postponed after the government declared a three-day period of mourning.

Now this document is certainly a step forward toward a transition of power from the U.S.-led coalition to some sort of Iraqi government. And it enshrines such concepts as freedom of religion, freedom of speech, women's rights, things that really were not part of the Iraqi political scene in the days of Saddam Hussein -- Kyra.

PHILLIPS: Ben Wedeman, live from Baghdad, thank you.

And CNN has learned that the search for Osama bin Laden will soon be a 24/7 operation. It wasn't exactly a part-time job before, but a new array of high-tech surveillance is designed, in one official's words, to throw the net over the world's most wanted terrorist.

CNN's Barbara Starr has the details.

(BEGIN VIDEOTAPE)

BARBARA STARR, CNN CORRESPONDENT (voice-over): CNN has learned the new strategy to catch Osama bin Laden includes high-tech surveillance to keep a 24/7 watch over the border region between Afghanistan and Pakistan.

Officially, none of this is acknowledged.

GEN. JOHN ABIZAID, U.S. CENTRAL COMMAND: Of course, you've read, heard in the press the idea that Osama bin Laden is surrounded and we have him cornered and we know where he is, et cetera, et cetera. And of course we don't know that.

STARR: But U.S. officials believe bin Laden may be feeling the heat from Pakistani military forces now hunting him and could start to move. So a round-the-clock surveillance could pay off.

As one official told CNN, "We are putting the pieces in place to throw the net over him. Everything will be in position within days."

Those intelligence gathering vehicles include: U-2 spy planes flying for hours at 70,000 feet or above, taking pictures, using radars and intercepting communications.

Unmanned Predators will take a closer look, flying at 25,000 feet. Its cameras see vehicles and people.

Special radars operate through clouds. Some may have Hellfire missiles.

Ground sensors may also be set around mountain passes, listening for vehicles. Streams of data will be sent via satellite to analysts for quick action. The military has brought up satellite transmission capacity in the region, making sure it can be respond quickly.

(on camera) If Osama bin Laden is spotted moving, waiting U.S. Special Forces will try to capture or kill him. But Osama bin Laden has slipped away before.

Barbara Starr, CNN, the Pentagon.

(END VIDEOTAPE)

PHILLIPS: In D.C., the A.G.'s in ICU. That's Attorney General John Ashcroft getting intensive care at George Washington University Hospital for gallstone pancreatitis.

Our Dr. Gupta tells us that's a potentially serious condition, in which a migrating gallstone acts like a cork on pancreatic enzymes.

A spokesperson says that Ashcroft thought he had stomach flu until the White House physician told him to hit the E.R. He's being treated with antibiotics, and Dr. Gupta says surgery may be in order.

Two and a half years after 9/11, 2001, the independent panel investigating lapses in U.S. intelligence finally has a schedule for public hearings.

CNN's Suzanne Malveaux has the times, dates and places at the White House -- Suzanne.

SUZANNE MALVEAUX, CNN CORRESPODNENT: Now here's some of the details that we're learning. It's going to be eight days of public testimony, beginning with March 23.

That is when the former, as well as current secretaries of state, as well as secretaries for defense, will go ahead and publicly testify, talking about the counter-terrorism policy before September 11, perhaps what the administration did or did not know before that tragedy.

They're also learning as well that former President Clinton, former Vice President Gore in the next couple of weeks will go ahead and testify privately before the full commission. They have yet to work out exactly what date.

And then, of course, still being negotiated with the White House, President Bush and Vice President Cheney has said that they agree they'll answer questions before the chair and the vice chair of that commission.

The commission really is trying to push so that they go ahead and answer those questions before the full investigative body. That is still being worked out at this time.

But of course, a lot of pressure on the Bush administration to go ahead, to answer some of those serious questions, those controversial issues. And of course a lot of pressure on the commission itself to wrap up its work in the next three months -- Kyra.

PHILLIPS: Meanwhile, president of Mexico, Vicente Fox, scheduled for a visit, also talking about laser visas (ph).

MALVEAUX: Well, actually what's happening at the Crawford ranch this coming weekend is what you're going to find -- not any major public announcements or policy changes here, but the two leaders getting together, becoming reacquainted.

These two leaders, as you know, have had sort of a mixed, some might say, a tumultuous relationship. You know that it was Mexico that did not support the U.S. war with Iraq, that the U.S. essentially delayed opening the border to Mexico immediately following September 11.

We're told that both leaders, however, have warm relations, that they're catching things up. We do expect they'll talk about immigration, about security issues, and the potential of perhaps relaxing some of the regulations for Mexicans who have visas -- Kyra.

PHILLIPS: Suzanne Malveaux, live from the White House. Thank you.

More follow-up on the Bush team's use of Ground Zero in a campaign ad. More relatives of 9/11 victims spoke out today against what they consider the exploitation of a national disaster and a betrayal of a promise.

A woman who lost her brother says that Mr. Bush promised never to use the Twin Towers for political gain.

We should note this event was sponsored by the liberal advocacy group Move On.

Earlier today, New York's 9/11 mayor defended the ads and the administration.

(BEGIN VIDEO CLIP)

RUDY GIULIANI, FORMER NEW YORK CITY MAYOR: People are going to judge this president even in history based on how he handled September 11, 2001, that very day, and then the long aftermath of it, including the war on terrorism.

So this was done in a tasteful way. It's an ad about the group of challenges the president has faced, the recession, other things, and September 11, 2001. You'd almost not be able to do the ad and talk about the challenges if you couldn't mention the truth.

(END VIDEO CLIP)

PHILLIPS: Well, the Bush re-election camp agrees with Giuliani, insists it won't back down.

Not so with the credit card company MBNA. That firm is cutting up its Spirit of America Mastercard after complaints from 9/11 families and the New York City Fire Department.

A portion of the Spirit cards proceeds went to a 9/11 charity. That company says it didn't amount to much, because the card never caught on.

Martha Stewart's waiting for a good thing in a New York courtroom. We're LIVE FROM New York coming up.

Also, caught on tape, a deputy's dramatic drive after a routine traffic stop.

Also ahead...

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: Not too many people get that opportunity, I don't believe. But I'm thankful that I got it.

(END VIDEO CLIP)

PHILLIPS: It's an amazing comeback. A man's journey from a homeless shelter to the boxing hall of fame. You won't want to miss this.

(COMMERCIAL BREAK)

(WEATHER REPORT)

(COMMERCIAL BREAK)

PHILLIPS: It's a mystery story with a happy ending. Yesterday, a mother had a tearful reunion with her daughter, six years after the child was presumed dead.

Robin MacIntosh with affiliate KYW picks up this amazing story. (BEGIN VIDEOTAPE)

CUEVAS: They said they're going to call me.

ROBIN MACINTOSH, KYW CORRESPONDENT: So hopefully you'll see her?

CUEVAS: I hope.

MACINTOSH (voice-over): It was the morning after the night Luz Cuevas had been waiting for for six long years. Only hours after seeing her daughter, Delimar, at an undisclosed location near the Burlington County family court in Mount Holly, Luz Cuevas was already planning the family reunion in Philadelphia.

CUEVAS: It will be, like, a family reunion with the whole family together. The teachers, you know.

I believe in my heart that she's going to...

MACINTOSH: Last night in Mount Holly, a judge began the reuniting process, setting up a series of visits between the little girl, and not only with her mother, but her father, Pedro Vera (ph), who came to the hearing and left with the same stuffed animal he had meant to give the little girl.

MICHAEL LUBER, ATTORNEY FOR FATHER: The ultimate goal for everybody is to see that this young lady is reunited with her natural parents.

MACINTOSH: So today's the first day of starting a new life for Luz Cuevas, a new life with the daughter she was told was lost in a fire but now has been finally found.

CUEVAS: The psychiatrist say that we have to call her Aliah, because she had that name for the years, you know, and then I say to her, the real name is Delimar.

(END VIDEOTAPE)

PHILLIPS: Thanks again to KYW for that report. Well, final custody transfer to the girl's mother is expected on Monday.

Other news across America, a prelim hearing under way in Grand Forks, North Dakota for the man accused of kidnapping college student Dru Sjodin. She disappeared from a mall last November. The man charged, Alfonso Rodriguez, denies kidnapping her.

A victory today in Wisconsin for opponents of same-sex marriage. The state assembly there voted 68-28 to amend the state constitution to ban same sex marriages and civil unions. The measure now moves to the state senate.

And in California, gay marriage goes before the state supreme court. Lawyers for the city of San Francisco will file briefs with the state's highest court. They argue that state law does not require local officials to obey statutes that they believe are unconstitutional.

The California state attorney general is trying to invalidate hundreds of same-sex marriages recently sanctioned in San Francisco.

Evidence of perjury, that's what jurors appear to be focused on in the Martha Stewart trial. During deliberations, jurors questioned the judge about a perjury charge against co-defendant Peter Bacanovic.

CNN's Allan Chernoff live with the details now outside the courthouse in New York.

Hi, Allan.

ALLAN CHERNOFF, CNN CORRESPONDENT: Hi, Kyra.

And it appears to be a very savvy jury. The question was actually posed to the court late yesterday. And the question sent attorneys for both sides scrambling to legal libraries, to write a memo to the judge, to try to get the answer they wanted the judge ruling this morning.

And the judge ruled that, in fact, the message log of Martha Stewart's assistant, Ann Armstrong, can be used to back up testimony from Miss Armstrong regarding the message that Peter Bacanovic left back on September 27, 2001, the day that Martha Stewart sold her ImClone stock.

This, judge ruled, can be used in order to convict on perjury.

So obviously, not very encouraging for the stockbroker, Peter Bacanovic. But that's all we can say at this point.

There is no verdict just yet, and there definitely will not be one before 2 Eastern Time because the court is out on a lunch break at the moment. So we'll have to begin our waiting once again at 2 p.m.

The judge herself commented this morning and said, "This is clearly a very intelligent and probative jury." So everybody in the court seems to be impressed by what the jurors are asking for here.

Kyra, it seems they are deep into this, and they are doing the work they're supposed to be doing. They are asking good questions, and they're looking at some of the very relevant testimony and evidence -- Kyra.

PHILLIPS: You mention a lot of good questions. Tell us some, Allan.

CHERNOFF: Well, they'd been asking about the testimony regarding December 27, testimony from Peter Bacanovic, to the Securities and Exchange Commission.

Also, they've been looking at phone logs from that very day. Everything very pertinent to the core of this case, which is of course, whether or not Martha Stewart and her stockbroker Peter Bacanovic lied about her sale of ImClone back on December 27 of 2001. Stewart and her broker claim that they had an agreement to sell the stock if it fell below $60 a share. And the government has maintained that simply was a cover-up for the fact that Martha Stewart got an insider tip that Sam Waksal, then head of ImClone Systems, was trying to dump all of his shares -- Kyra.

PHILLIPS: You've had a chance to be pretty close to Martha Stewart. What's her demeanor like?

CHERNOFF: Martha Stewart has really been -- you could say almost stone-faced in the courtroom. I know walking in and out of the court, you often see her smiling, waving to a few supporters.

But inside, she is clearly nervous. There's no question about that. Really not smiling at all.

Peter Bacanovic in contrast, seems to be quite a bit cooler. Once in awhile, he'll be smiling, joking around with his lawyers, or family members. So a contrast between the two defendants here.

PHILLIPS: We continue to wait for that verdict. Allan Chernoff, thank you.

Straight ahead, what's fueling rising gas prices?

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: I think that there's no reason for it whatsoever, and I think we, the consumers, are being gouged.

(END VIDEO CLIP)

PHILLIPS: Ahead on LIVE FROM, a look at some of the real reasons you're paying more at the pump.

And if two heads are better than one, this little croaker's having triple the fun. The video of the day comes in for an amphibious landing, right here on LIVE FROM.

(COMMERCIAL BREAK)

PHILLIPS: Getting around costs big bucks these days, especially if you drive. Gas prices are skyrocketing, and motorists are pumping mad.

CNN's Eric Philips reports it looks as if things will actually get worse before they get better.

(BEGIN VIDEOTAPE)

ERIC PHILIPS, CNN CORRESONDENT (voice-over): If you drive to and from work, or if you drive for work, you know firsthand what analysts have been telling us for weeks now. Gas prices are up.

UNIDENTIFIED FEMALE: I feel as though these gas prices are going up by the minute. It's really, really ridiculous. PHILIPS: Consider the rise in regular gasoline prices over just the last two weeks. On the East Coast, motorists have seen an increase of three cents over the last two weeks. In the Midwest, it's gone up four cents; two cents in the Gulf Coast states; five cents in the Rocky Mountain region, and a whopping 20 cents out West, reaching more than $2 a gallon.

UNIDENTIFIED MALE: I think that there's no reason for it whatsoever; and I think we, the consumers, are being gouged.

PHILIPS: Experts say while it's unusual for prices to spike this early in the year, fewer refineries processing less oil is creating more problems.

JUSTIN MCNAULL, AAA: The global supply has been diminishing due to some cutbacks in OPEC production. And at the same time, we've seen demand torque up as the economy's revved up. China's using a lot more crude oil.

PHILIPS: The founder of a website called GasPriceWatch.com says there's no good explanation for the skyrocketing prices.

BRAD PROCTOR, GASPRICEWATCH.COM: I look at these refinery closures. Those just didn't happen in a week. These were planned a year or two earlier. So the industry knew that these short falls were going to start to occur and should have been able to ramp up other capabilities to fill in for this.

PHILIPS: Industry analysts say as usual prices may go even higher as we approach Memorial Day.

Eric Philips, CNN, New York.

(END VIDEOTAPE)

PHILLIPS: Paltry payrolls and a dwindling workforce. Darby Mullany, live from the New York Stock Exchange with a look at the jobs picture -- Darby.

(STOCK REPORT)

PHILLIPS: Coming up, buy a Big Mac, you could get a chunk of cash for dessert.

(COMMERCIAL BREAK)

PHILLIPS: The desk and the pens are there, but the document to sign is not. In Iraq, there's been a delay in today's planned signing of an interim constitution. The governing council is now discussing last-minute Shiite concerns over how to veto proposed permanent law.

Attorney General John Ashcroft under careful monitoring in the ICU now. He was hospitalized last night for a severe case of gallstone pancreatitis. Doctors say that Ashcroft is being treated with antibiotics. They expect to know more in about 48 hours. In Miami, abandoned boat. The firefighter actually jumps into the water to pull the burning boat back to the dock. It was later extinguished.

PHILLIPS: After a night of severe thunderstorms and twisters in the south central part of the country, heavy rain is still falling in Oklahoma. There's been flooding and evacuations all throughout the state.

Reporter Kevin Sims of affiliate KOCO, live from Kingfisher with the details and probably some waders.

KEVIN SIMS, KOCO CORRESPONDENT: Yes. I wish, Kyra. Unfortunately, I wasn't that smart and just wore jeans today.

It is a chilly, but fortunately, so far, dry day, Kyra, in Northwestern Oklahoma. But the evidence of that fast moving storm is just about all around us.

We're here in a -- just off the highway in a hayfield just north of the town of Kingfisher. You can see the water was all the way up past this barbed wire fence overnight, as it continued to rise and push all the debris that came basically up on this fence.

It looks as though we're overlooking a pond or a lake out here, but that is actually a pasture. And then beyond that is the train that was derailed because of the high water.

Now first I'm going to take a look in town at the high water there in Kingfisher. Kingfisher Creek is actually -- The train derailment, again happened about 8 -- 5 a.m. this morning.

As basically, we were told there was a flash flood warning here in Kingfisher County and at that time, all traffic -- all train traffic was halted.

But then once that warning expired, train traffic resumed. And the conductor there, the engineer, just -- basically, it was too dark to see the water, the high water on the track.

So we're told about a dozen or so cars derailed. Nothing hazardous. That's the good news, is they got in there and checked and so far all they can tell on board was a bunch of new vehicles headed to some dealership.

And then they also checked the engine to see if the engine itself was leaking any diesel. That does not appear to be the case.

They did have three crew members on board they had a tough time getting in there to rescue because all the roads leading up to the engine and the derailed cars -- well, there were no dry roads to get in there to them.

Meanwhile, in town, Kingfisher Creek went over its banks. They had to evacuate some folks in town and take them to nearby Churches, which is just down the road. But as we're told, most folks actually went to nearby relatives. Not many folks had to go to the shelters.

But still, about a dozen or so businesses downtown completely overran by water. No injuries, however. But there is a lot of drying out and a lot of cleaning up here to do in northwestern Oklahoma -- Kyra.

PHILLIPS: Kevin, I'm curious. When you woke up this morning what was it like when you opened your door?

SIMS: It was actually very sunny. We were out in it all day yesterday, and it was about 60 degrees yesterday and then dropped five degrees or so and dried out.

But in Oklahoma City, which is just about 45 miles southwest of here, southeast of here, rather, it was dry. That's the good news here.

One thing we are watching out for, Kyra, is as all this water drains out of the pastures, out of the fields, out of the creeks and goes into our local rivers, we know the system here. And once one town can flood, then, you know, five, six, town hours later, the towns downstream can flood as well.

So that's what we're keeping an eye out for right now.

PHILLIPS: Kevin Sims, with our affiliate, KOCO. We sure appreciate your time, Kevin, thank you.

Polling for the presidency, which White House candidate has the most support ahead of the election? President Bush has 46 percent support in a new A.P./IPSOS public affairs poll, while Democratic rival John Kerry is close behind with 45 percent. Ralph Nader's impact also registering; the independent candidate has six percent support.

Now we take a look into John Kerry's campaign coffers. The Democrat plans to start a 20-city fund-raising tour. Says his goal is to raise $105 million.

Earlier in the primary race, Kerry took out a mortgage loan to keep his campaign afloat.

But as CNN's Jeanne Meserve reports, that loan is now under scrutiny.

(BEGIN VIDEOTAPE)

JEANNE MESERVE, CNN CORRESPODNENT (voice-over): In December, John Kerry's bid for the candidacy was on life support, its vital signs fading. He resuscitated it by borrowing $6.4 million to inject into his campaign.

MICHAEL MEEHAN, KERRY CAMPAIGN ADVISOR: It allowed us time just to go and talk to voters in Iowa and New Hampshire, which were the first two critical, in January, tests, without having to leave the states to go raise money. MESERVE (on camera): so essentially this money kept him in the race?

MEEHAN: Absolutely.

MESERVE (voice-over): Kerry got the money by taking out a mortgage on the Boston home he owns with his fabulously wealthy wife, Teresa Heinz Kerry. Nineteen Lewisburg Square is one of the swankiest addresses in the city.

The Kerrys bought the one-time convent for $1.75 million in 1996 and did extensive renovations. What used to be a chapel is now a kitchen.

What is the house worth? For 2004, the city assessed it at $6.6 million. But an appraisal for the Mellon Bank, which gave Kerry his loan came in at almost double that, $12.8 million.

The valuation is critical, because under federal election commission rules, a candidate can contribute only half the value of jointly held property.

LARRY NOBLE, CENTER FOR RESPONSIBLE POLITICS: Well, if the house is worth less than $12.8 million, then you start getting into the realm of Teresa Heinz having made an illegal contribution to his campaign.

MESERVE: Neither the bank nor the campaign will make the appraisal available. But Debra Taylor, who runs a Boston listing service, says it's on target.

DEBRA TAYLOR, LISTING INFORMATION NETWORK: I'm not surprised at all. I think it sounds absolutely normal. It follows the rule of thumb, a property selling at twice the assessed value.

MESERVE: Boston's tax assessor insists his number is in line with comparable sales.

Now, there is another issue, the payoff. Under the new McCain/Feingold campaign finance law, Kerry's campaign could retire the debt, but only before he receives the nomination.

After that, virtually all of it would have to come out of his pocket. He cannot tap in to his wife's estimated half a billion dollar fortune. His own worth is a comparatively modest $2 million. His Senate salary, roughly $158,000 a year. His monthly payment, $15,000.

MEEHAN: He has said that he will pay it back.

MESERVE (on camera): How? With what?

MEEHAN: Senator Kerry's a man of substantial means, some that might not be readily apparent from his tax returns or from his personal disclosure form. MESERVE: The Kerry campaign has made the first two payments, but doing more would divert crucial funds from Kerry's face-off with President Bush, whose campaign has already begun an advertising onslaught with some of the $!50 million it has raised already.

(on camera) Ironically, the very loan that helped Kerry win early could hobble him in the end.

Jeanne Meserve, CNN, Washington.

(END VIDEOTAPE)

PHILLIPS: Now, long before his infamous Iowa rant, Howard Dean was considered the Democratic presidential front-runner.

This Sunday, "CNN PRESDENT" gives you an exclusive look at Dean and his staff. "True Believers" documents life inside the Dean campaign.

Here's a preview.

(BEGIN VIDEOTAPE)

UNIDENTIFIED MALE: We want Dean! We want Dean!

UNIDENTIFIED MALE: We want Dean! We want Dean!

UNIDENTIFIED MALE: We want Dean! We want Dean!

UNIDENTIFIED MALE: Who do we want?

UNIDENTIFIED MALE: Dean!

UNIDENTIFIED MALE: When do we want him?

UNIDENTIFIED MALE: Now!

E.J. DIONNE, "WASHINGTON POST" COLUMNIST: I think he got such a good ride in the middle of the summer.

JOE TRIPPI, FORMER HOWARD DEAN CAMPAIGN MANAGER: You can't there for that long and talk without committing news.

DIONNE: The fact that he's been able to almost fly under the radar meant that an awful lot of people felt, both among his opponents and in the press, that they'd better catch up and start giving some critical scrutiny to this guy who at that moment, people were say, my God, he's going to sweep to the nomination.

TRIPPI: The whole damn pack of 'em's coming.

The most telling quote in the past couple weeks was in "TIMIE" magazine. When one of those cowards had a blind quote. And that's exactly what they were, freaking chicken (expletive deleted).

Because one of them said it's like the mafia. Everybody wants one of the other families to hit him.

MIKE MURPHY, MCCAIN 2000 PRESIDENTIAL CAMPAIGN ADVISOR: That's true, that's what always happens in multi-way primaries. You see, you're all sitting around saying, "Well, we don't want the guy. He'll fight back and scruff up our beautiful white tuxedo. We'll wait for those, you know, psychos over at Lieberman to do it."

SEN. JOE LIEBERMAN (D-CT), FORMER PRESIDENTIAL CANDIDATE: Let me say to Governor Dean, he has said he wouldn't take sides. But then he has said Israel ought to get out of the West Bank, and an enormous number of those settlements ought to be broken down.

That's up to the parties in their negotiations, not for us to tell them.

TRIPPI: Are you guys looking at this? This is, like, such (expletive deleted), literally. This is the most disgusting thing anybody's done in this race so far. This is more disgusting than anything Kerry's ever done.

I mean with all the crap you can hit us with above the belt, which would be legitimate and let's have a debate, you're going to go below the belt?

We should put out a statement that this is among -- I want to make sure I'm not overreacting. The only thing I can think is they're just try to get a Dean/Lieberman headline.

UNIDENTIFIED MALE: That's what they're doing.

TRIPPI: But, I mean, to do that -- I never thought I'd get to see that (expletive deleted) out of them.

UNIDENTIFIED MALE: I guess he doesn't want to be vice president again.

(END VIDEOTAPE)

PHILLIPS: Well, you don't want to miss the all-new "CNN PRESENTS" that takes you inside that political process. "TRUE BELIEVERS: LIFE INSIDE THE DEAN CAMPAIGN," Sunday, 8 p.m. Eastern, 5 p.m. Pacific, right here on CNN.

Well, they found a new home, costumes, records, photographs, and more. Some Jackson collectibles, no longer in the famous family. We'll tell you where they went.

Plus, it's been a long time coming. How this former athlete went from a boxing ring to a homeless shelter and now the hall of fame.

And later -- they say two heads are better than one. What about three?

(COMMERCIAL BREAK)

PHILLIPS: Well, a routine traffic stop was anything but routine for a Georgia highway patrol officer. His brush with danger yesterday was all caught on tape.

Morse Diggs from affiliate WAGA reports.

(BEGIN VIDEOTAPE)

MORSE DIGGS, WAGA CORRESPONDENT (voice-over): This is police video of a traffic stop on the downtown connector that turned out to be anything but routine.

The single occupant pulled over for driving in the HOV lane.

CPL. JACK LAWRENCE, GEORGIA HIGHWAY PATROL: It's a female.

DIGGS: Corporal Jack Lawrence took us through what happened.

LAWRENCE: Before I left my vehicle, they radioed in and told me that the vehicle was stolen.

DIGGS: Now, watch what happens next as he gives the motorist instructions.

LAWRENCE: Come out of your vehicle. Come out of the car.

UNIDENTIFIED FEMALE: Please, I'm sorry. I'm sorry, I'm sorry...

LAWRENCE: Working on instincts and training, I just jumped through the driver's window, got in the car with her, trying to subdue her. Her and I are wrestling over control of the vehicle, trying to get the car in park, trying to turn the key off.

DIGGS (on camera): You're supposed to be cool, but you must have been a little bit scared, a little bit anxious.

LAWRENCE: Sure. I mean, anybody would be in the same situation. But, you know, you have to do what you have to do sometimes. And that was better than her going down the road at high speed and maybe getting somebody killed.

(END VIDEOTAPE)

PHILLIPS: Well, later, police say that the female driver has a criminal history and had outstanding warrants.

Well, professional golf's first transsexual player missed the cut today for the women's Australian Open in Sydney.

Mianne Bagger fired a second round 74 after a shaky opening round 84. Bagger says her second day score gives her credibility.

This week's event on the Australian ladies tour offered Bagger a rare opportunity to play. Now under current rules, women in tournaments sponsored by the LPGA and the U.S. and European golf associations must be born a female.

In the world of boxing, comebacks are part of the game. But for one former welterweight championship contender, his comeback may be life-changing. Ernie Lopez has gone from homeless to hero.

Reporter Barry Carpenter, CNN affiliate KDKF in Dallas-Ft. Worth, has his amazing story.

(BEGIN VIDEOTAPE)

BARRY CARPENTER, KDKF CORRESPONDENT (voice-over): It's been a long road for 58-year-old former welterweight contender Ernie "Indian Red" Lopez. He arrived at DFW with a one-way ticket to Los Angeles and a newspaper with him on the front page.

ERNIE LOPEZ, BOXER: I didn't think I'd ever be on the front page here of "The Star-Telegram."

CARPENTER: But Lopez was no stranger to the sport page or boxing magazines. That's him in his Indian Red warm up. And here in 1970 a title fight loss to Jose Napoles.

He and his wife divorced in 1972. Then, in 1973, he lost another title fight to Napoles.

(on camera) Those losses were apparently so devastating that Lopez simply disappeared, wandering the country for years, ultimately, winding up here at a Ft. Worth homeless shelter.

(voice-over) Lopez would sometimes contact family members. But for the past ten years, he vanished. But family members in Los Angeles found out that Lopez had been inducted into the California Boxing Hall of Fame.

L.A. police tracked him to this shelter and this bed. Now he and his tattered duffel bag are off to L.A.

LOPEZ: You know, got a hold of me and said they're going to put me in the boxing hall of fame down in California. I got a pretty good record so...

CARPENTER: 51-10-1 to be exact, but the biggest win may be seeing his family again. Former wife, four kids, and 23 grandchildren, who won't let him disappear again.

LOPEZ: That's what he told me. They says, you better start keeping in touch with us.

CARPENTER: The Presbyterian night shelter has been his home for months. Friends there say the once fierce fighter is incredibly humble.

DENNIS PENNINGTON, PRESBYTERIAN NIGHT SHELTER: We didn't even know he boxed. He doesn't go around talking about it. He's just humble. He's a genuinely nice guy.

CARPENTER: Lopez may have never been a world boxing champion, but he's earned the title of L.A.'s most wanted dad.

LOPEZ: That's going to be nice. That will be good. Not too many people get that, get that opportunity, I don't believe. But I'm thankful that I got it.

CARPENTER: In Dallas, Barry Carpenter, for CNN.

(END VIDEOTAPE)

PHILLIPS: Well, hold the centerfold and forget the cleavage, are you man enough for this new magazine? We're going to lay out the details.

Plus this next time you step into a McDonald's, you could be a millionaire and you don't have to order a thing. Darby Mullany, watching the store from the New York Stock Exchange -- Darby.

DARBY MULLANY, CNN CORRESPONDENT: Well, that's right. How would you like cash with that quarter-pounder? We'll have details on a supersized settlement when LIVE FROM continues after this break.

(COMMERCIAL BREAK)

PHILLIPS: A European collector has hit the Jackson jackpot.

The unnamed person has bought a collection of Jackson family memorabilia, including costumes, gold records, photographs and documents, belonging to Michael Jackson and his family.

Henry Vaccaro Sr. of Asbury Park, New jersey, says he acquired that the collection to sell only after a nine-year legal battle with the Jackson family. No word on whether Michael Jackson's famous sequined glove is included.

Well, if you're one of those rare men who loves to shop until you drop -- it's not so rare any more -- help is as close as your magazine stand.

A new men's magazine devoted solely to shopping is hot off the presses. Jeanne Moos reports "Cargo" has something for every man.

(BEGIN VIDEOTAPE)

JEANNE MOOS, CNN CORRESPONDENT (voice-over): If you think shopping is for girls, check out the new men's magazine.

UNIDENTIFIED MALE: Where's the cleavage, though?

MOOS: Cleavage? The barest chest in this issue belonged to a guy with half his body hair trimmed.

Whether you're in the market for shavers or sweaters or bags, now there's "Cargo."

(on camera) It's a shopping magazine for men. But don't look that way...

UNIDENTIFIED MALE: What kind of shopping?

MOOS (voice-over): From sunglasses to shaving cream, "Cargo" looks for the coolest, tests for the best.

(on camera) So, did Stubble Stop stop stubble?

UNIDENTIFIED MALE: No.

MOOS (voice-over): It's the hottest new category in magazine publishing. "Cargo" just had its launch party.

(on camera) Have you seen the section on shaving?

(voice-over) A rival men's shopping magazine called "Vitals" is due out in the fall.

"Cargo" is the guy's version of "Lucky," the smash hit shopping magazine for women.

UNIDENTIFIED MALE: It's about time we get something for us.

MOOS: Steven Wilfrog (ph) is seen modeling a suit in "Cargo."

UNIDENTIFIED MALE: We don't show it on models. We show it on real guys so you can see what it would look like on you.

MOOS: "Cargo" found its cover boy hanging out in a New York City park. The magazine zeroes in on camcorders and cell phones and cars. It will suggest the best nose hair clippers or binoculars that double as a pair of flasks.

(on camera) Would you look at a shopping magazine for men?

UNIDENTIFIED MALE: When you showed me the gadget stuff, I think so. I thought there were some cool things in there, yes.

MOOS (voice-over): "Cargo" has regular features like: "Honey, does this make me look gay." There are stickers to tag items you like.

UNIDENTIFIED MALE: It's more of a metrosexual magazine.

MOOS (on camera): Do you consider yourself a metrosexual?

UNIDENTIFIED MALE: I do, actually. I do.

MOOS: You care how you look and...

UNIDENTIFIED MALE: Very much so. Right, right.

MOOS (voice-over): Maybe guys will shop for boxers when they learn 74 percent of women prefer them over briefs.

Closet metrosexuals can add to their closets.

(on camera) You like the Nike?

UNIDENTIFIED MALE: Oh, yes.

MOOS (voice-over): Jeanne Moos, CNN, New York.

(END VIDEOTAPE)

PHILLIPS: All right. Any CNN producer can tell you that Jeanne Moos pieces are very hard acts to follow, but we think we can do it today.

Meet the three-headed frog of Somerset, England. Though that's a bit of a misnomer. This guy is more like three frogs fused together. He or she or they turned up at a day care center, and wildlife experts want to know just what were those kids up to?

You want fries with that cash prize? Darby Mullany, LIVE FROM the New York stock exchange with that story -- Darby.

(STOCK REPORT)

PHILLIPS: Attorney General John Ashcroft remains in intensive care at this hour being treated for gallstone pancreatitis. Almost 20 million American Suffer from gallstones, but far fewer experience what Ashcroft's going through. Dr. Gupta takes a closer look at his condition.

(COMMERCIAL BREAK)

PHILLIPS: Guilty or not guilty? Live pictures from a New York courtroom, where Martha Stewart awaits her fate.

Jobs in America, new numbers out today. Are they adding up to a stronger or weaker economy? Depends on whom you ask.

(BEGIN VIDEO CLIP)

LUCIA NEWMAN, CNN CORRESPONDENT (voice-over): Their eyes are as huge as their stomachs are empty. It's been more than a month since food donations arrived at this Port-au-Prince orphanage.

(END VIDEO CLIP)

STEWART: Caught in a conflict, the youngest victims of a desperate situation.

And a dramatic swim for shore. A firefighter's daring determination to save a burning boat. From the CNN center in Atlanta, I'm Kyra Phillips.

This hour of CNN's LIVE FROM starts right now.

And we want to take you straight to New York. Mary Snow standing by, outside the courthouse as we still await a verdict in the Martha Stewart trial -- Mary.

MARY SNOW, CNN CORRESPONDENT: Kyra, the jury is expected back to lunch. They had an hour lunch. And this is day three of deliberations. This morning, a ruling by the judge came on a question by the jurors regarding count six. And that had to do with the count of perjury against Peter Bacanovic. It was seen as not a good indication for him.

The judge ruling on a two-witness question. Basically, what it came down to is that the judge ruled that a piece of document, a phone record, could be counted as a witness for the testimony of the same person who kept those records.

This had to do with one of the specifications of the perjury charges having to do with a phone message that Martha Stewart's assistant took from Peter Bacanovic on December 27, 2001, the day she sold her ImClone stock.

The jury is considering four charges against Martha Stewart, including conspiracy, two count of false statements and obstruction of justice. There are five counts being considered against her co- defendant and stockbroker, Peter Bacanovic. Each of these counts carries a maximum penalty of five years in a prison and a $250,000 fine.

One thing that could be said about this jury, it has been very thorough over the past couple of days, asking for several pieces of documents, and a number of questions.

And regarding that latest note that they sent out late yesterday, the judge ruling on that today saying it is clear that this is a very careful and intelligent jury by the questions they have been asking so awaiting a verdict. This is day three of deliberations -- Kyra.

PHILLIPS: All right, Mary. I know you and Allan Chernoff both had a chance to see Martha Stewart up close. What's your feeling? What are your impressions about how she's taking all this in?

SNOW: She seems to be taking it in stride and, you know, for the days that she has been in the courtroom really not showing much expression, pretty much consistent and even this morning going into the courtroom.

I was behind her in the line for the metal detector. She seemed very relaxed, smiling at times. She's been accompanied every day to the courthouse by her daughter Alexis by her side, sitting with her each day in the courtroom and she appeared to be relaxed this morning going into the courthouse -- Kyra.

PHILLIPS: All right, Mary Snow we'll be talking to you I'm sure quite a bit this hour. Thanks Mary.

SNOW: Sure.

PHILLIPS: The other story that we're following, the U.S. economy ads jobs. The White House says it's good news. The number is less than one-fifth of Wall Street's expectations and kind of says that it's bad news. The jobs report for February also shows almost 400,000 people who want jobs have given up looking. Officially, they no longer count as employed. All tolled the U.S. jobless rate remains at 5.6 percent.

February's 21,000 new jobs pales in comparison with estimates not to mention the 200,000 minimum that analysts say is necessary, month in, month out to constitute a job market rebound.

Well, for the 43rd month in a row the manufacturing sector lost jobs and none of this has escaped the notice of the man who wants President Bush's job come January.

Alluding to the $2 million plus jobs the U.S. economy has shed in the Bush administration, John Kerry says and we quote: "At this rate, the Bush administration won't create its first job for more than ten years."

Mr. Bush is crunching numbers today and preparing to mend some fences. We get the details from CNN's Dana Bash. She's in Crawford, Texas -- Dana.

DANA BASH, CNN WHITE HOUSE CORRESPONDENT: Hi, Kyra.

Well this jobs report is certainly something, as you said, that the White House is trying to put their best face on saying that essentially at least the economy didn't lose jobs over the past month but it is hard when talking to White House aides to get a sense that they are -- it's easy to understand that they are trying to mask their disappointment.

Let's take a look first of all at the numbers. In February, this new job number shows 21,000 new jobs were created and they also revised January's job numbers downward, only 97,000 jobs were created. It was over 100,000. That was the initial report.

Now you remember the White House estimate put out in a book by the president's Council of Economic Advisors was 2.6 million new jobs. Now that is a number that the White House has since backed off of essentially saying that it won't necessarily be that but certainly Democrats have been focusing on that number and with these new job numbers for this month it makes it clear it will be pretty hard to get to that 2.6 million new jobs number by the end of the year.

Now, the Secretary of Commerce Don Evans put out a statement saying: "While we are creating jobs, today's unemployment numbers underscore the urgent need for action on the president's plan to lift the heavy domestic cost burdens that are holding back accelerated job creation.

Factory activity is rising and manufacturing job losses are slowing but President Bush won't be satisfied until every American seeking work finds a job."

And that is what we hear from the president, Kyra, as he travels around the country, just yesterday in California sitting with some members of California's population there talking about the fact that they are actually benefiting from his tax cuts, that businesses are benefiting from his tax cuts, trying to put the best face forward on this.

But campaign aides say that they are sticking to his plan to make the tax cut permanent and are still pitting John Kerry, his Democratic opponent, as somebody who will reverse those policies and doesn't necessarily have a plan himself for turning around this job loss -- back to you, Kyra.

PHILLIPS: Dana Bash live from Crawford, Texas.

It's a long way to November but if the presidential election were held today it would be a very close race according to a new AP poll. Forty-six percent of those surveyed support President Bush, 45 percent back John Kerry and Independent Ralph Nader showing he could be a force to be reckoned with gets six percent support.

To Iraq on what was billed as a momentous day the signing of a document that paves the way for self rule. It was supposed to happen about six hours ago. Our Baghdad Bureau Chief Jane Arraf and a lot of others are still waiting what happened Jane?

JANE ARRAF, CNN BAGHDAD BUREAU CHIEF: Well, Kyra, what happened according to the American coalition officials is democracy, which they say is a messy business. Now essentially some of the Shia members decided that they couldn't quite live with one of the clauses in this draft constitution even though it had been unanimously agreed to a few days ago.

So, starting this morning they have been talking it over and, as the ceremony time came and went and hours later they are still discussing how they are going to get around this roadblock. The council spokesman, though, Hamid al Kifai says it's not that serious.

(BEGIN VIDEO CLIP)

HAMID AL KIFAI: And some members have some concerns and they are discussing these clauses and of course there is no disagreement on the principles, no disagreement whatsoever. We have got the most progressive constitution in Iraq's history. This constitution is an achievement.

(END VIDEO CLIP)

ARRAF: An achievement certainly but that disagreement they're discussing is, while a technicality, a very important one. It essentially sets out whether the Kurds could have a veto over a permanent constitution, something that they're still discussing -- Kyra.

PHILLIPS: I'm curious. There is a number of issues causing this roadblock right Jane? What is it and what is it that's new in this type of environment, maybe issues that couldn't be discussed previously under the reign of Saddam Hussein?

ARRAF: Well, just looking at this week what's new this week is that we had this terrible bombing on the holiest Shia day in the holy city of Najaf, sorry of Karbala and here in Baghdad, 170 people killed and that has raised religious feelings and feeling too among Shias that they really need to ensure their future.

Now apparently some of the members of the governing council, some of the Shia members have spoken to a very influential Shia cleric here the Ayatollah al-Sistani who indicated he wasn't very pleased with this. So, they have gone back to talk about whether they can indeed change this.

As for what's new over the long term from last year, pretty well everything. The fact that we have all of these members Kurdish, Shia, Sunni every other religious group practically sitting in a room and being able to debate this is new, so much of this is new.

It's a new country. It's going to stumble a little bit on that road to democracy and that's perhaps what we're seeing now but they say they're going to keep on track -- Kyra.

PHILLIPS: No doubt. You will too following it for us. Jane Arraf thanks so much.

Other news across America now, Homeland Security Chief Tom Ridge admits the number of air marshals protecting commercial flights has been declining and more job cuts are pending. Ridge says that law enforcement agents, including those from the Secret Service, will be authorized to serve as air marshals when they fly.

Well this boat went up in flames in a Miami dock and firefighters sprayed it down but the boat began to drift away. Well, a lone fireman jumped to the rescue single handedly pulling the blazing boat back to shore.

And a school teacher is in big trouble for showing parts of Mel Gibson's "The Passion of the Christ" to at least 16 students at Malcolm X Elementary School in Washington, D.C. Some parents say their children were so traumatized by the R-rated violence they needed counseling. Others say their kids see a lot worse in real life every day.

Attorney General John Ashcroft remains in intensive care. He's undergoing treatment for an extremely painful condition called gallstone pancreatitis. Ashcroft was taken to George Washington University Hospital last night after falling ill with what he thought was the stomach flu.

CNN Medical Correspondent Dr. Sanjay Gupta explains exactly what the attorney general has and what can be done about it.

(BEGIN VIDEOTAPE)

DR. SANJAY GUPTA, CNN MEDICAL CORRESPONDENT: Well, the attorney general has been in the hospital since yesterday now, almost 24 hours in the ICU most likely receiving antibiotics, fluids and pain medications. Talking about gallstone pancreatitis everyone has heard of gallstones. Those are fairly common. About 20 million American adults do suffer from those. It's much more rare though to develop gallstone disease, about five percent. You can see the numbers and even rarer then to develop gallstone pancreatitis about less than one percent of the time.

This is one of the more painful things when it comes to general surgical type things. Take a look at the list of the symptoms there, certainly abdominal pain. That's an obvious one but also back pain. (UNINTELLIGIBLE) the pancreas is also -- goes into the back.

Patients can also develop nausea, fever and certainly those elevated enzymes that are the culprit. Those elevated enzymes can cause all sorts of problems. That is what is cooling down when doctors say the attorney general's pancreas is cooling down.

Take a look at this diagram now this diagram giving a better sense of just exactly what's happening in green. The gallbladder stones coming out of the gallbladder going down these little ducts. Sometimes those ducts can get plugged up by the gallstones. That's called gallstone disease.

If the gallstones move a little further down and block the pancreas as well that's when you get into gallstone pancreatitis. Sometimes an operation is needed. Sometimes that operation is to remove the gallbladder.

Sometimes it's just a procedure to put in stents to get rid of those little stones. Time will tell as to what procedure the attorney general needs. It will probably take some time -- take place sometime next week.

Dr. Sanjay Gupta, CNN reporting.

(END VIDEOTAPE)

PHILLIPS: Straight ahead inside the so-called "Memogate" scandal what to do about the unauthorized (AUDIO GAP).

And family reunion, a mother and daughter meet for the first time since the girl was declared dead six years ago.

And an Iraqi girl's determination to get back what the war took away from her. You'll be amazed by her poise and her courage.

(COMMERCIAL BREAK)

PHILLIPS: Jurors in the Martha Stewart trial are still deliberating. It's the third day over whether Martha Stewart and her broker Peter Bacanovic lied about her sale of ImClone stock shortly before it tanked.

The trial has taken its toll on Stewart's own company Martha Stewart Living Omni Media. So, can Stewart's empire built on homemaking advice, recipes and decorating tips be saved? With us to talk more about it communication strategist Robby Vorhaus, he's founder and president of the public relations firm Vorhaus Communications, Robbie, good to see you.

ROBERT VORHAUS, COMMUNICATIONS STRATEGIST: Hi, Kyra nice to see you.

PHILLIPS: All right. So the question is can she make bread rise again? That's your question I guess.

VORHAUS: Absolutely. You know what happened in this trial is, is that we saw that our favorite domestic diva, Martha Stewart, was not the same in her personal life as she is in her public life and all she needs to do is to get back and to make her bread rise again is to simply say, you know, I'm sorry.

I'm sorry that this happened. I'm sorry that so many people were distracted. Let's go back into the bedroom and make those wonderful curtains. Let's make our bed with 100 percent cotton sheets. Let's bake great cupcakes and all will be well.

PHILLIPS: But as time has sort of rolled on here and we've seen, learned a lot I guess about Martha Stewart...

VORHAUS: Right.

PHILLIPS: She's not necessarily the I'm sorry maybe humble type. A lot of people think she's a bully Robby.

VORHAUS: Well, that's true and I think that anyone who has known Martha Stewart, has spent any time with Martha Stewart, who has written about Martha Stewart will tell you that the bully, you're using the right B word but not necessarily the right word.

But, but she has the opportunity like all of us as human beings to resurrect ourselves to say, you know what I've learned a lot here and, you know what I'm sorry. Now, if she doesn't do that, if she continues down this path and says I'm a victim. I was wronged.

It doesn't matter if she's acquitted or convicted the women of America are going to say, you know what, I can't get behind her because my husband doesn't want me to act that way. My kids don't want me to act that way and the brand will falter. However, on the other hand, if she says, you know what, I'm sorry. We've been distracted by this. Let's go out and pick some roses it's OK.

PHILLIPS: How badly do you think her brand has been damaged?

VORHAUS: Oh, it's been damaged dramatically. I mean here is a woman who has built a domestic diva status, who has built an entire brand on goodness but now that she's gotten so big and we see that the personal and the professional don't match people are waiting to see what is she going to do? Does she get it? So, if she gets it and she is humbled and demonstrates that she'll be fine. If not we're going to see the end of Martha Stewart as a brand.

PHILLIPS: What do you think she -- do you think what she did is worth jail time?

VORHAUS: No, I don't and you know I think that what happened with WorldCom and with Enron where thousands, possibly millions of people lost their life savings and their retirement, those people I believe are criminal and deserve to go to prison.

If Martha Stewart is convicted she was selfish and greedy and I think that a fine and -- that's my own personal opinion. I don't think that what she did is something that should land her in jail.

But there, you know, there are the laws of the land and she broke them and she was living a very good life and, you know, as much as -- as rich people who are in the public eye who try to have demonstrated, as we saw in the '80s and '90s that they don't live by the same rules that we do it's not true. They do and they fall and then they go to jail.

PHILLIPS: Do you see scapegoat here?

VORHAUS: You know I do. I think that here is a very powerful woman who played by different rules and I think that there are a lot of people who said, you know what we caught her in something and let's -- let's, you know, take her down.

Do I think that this is a conspiracy, no, and do I think that she brought it on herself, I do, but I also think that a lot of people resent the fact that this woman who came from, you know really nothing and she did so much, Kyra, this woman has done so much to help the American public raise their style, raise their substance.

And if she could just smile, if she could just say -- we all wish that she could. It's her own little secret. We want Martha Stewart to say I'm sorry. Let's go back and bake some bread.

PHILLIPS: Interesting. Well, we're going to ask you to stand by.

VORHAUS: I'd love to.

PHILLIPS: You never know what could happen. There could be a verdict, so will you hold tight in the bureau there with us, Robby?

VORHAUS: I'm happy to, Kyra.

PHILLIPS: All right.

VORHAUS: Delighted.

PHILLIPS: Robby Vorhaus thanks so much.

Well straight ahead from the dream to the scream what went on behind the scenes in the Howard Dean campaign? We'll take you inside the Internet-driven dash for the White House.

DARBY MULLANY, CNN CORRESPONDENT: I'm Darby Mullany in New York. Keeping tabs on jobs and tax dollars, lawmakers move to stem the flow to international shores. We'll have details when LIVE FROM continues after this break.

(COMMERCIAL BREAK)

PHILLIPS: Well during an election year you usually only get to see and hear what the candidates want you to and Sunday night CNN brings you a lot more from inside a presidential campaign. Here's a brief behind-the-scenes look at the Dean bid.

(BEGIN VIDEOTAPE)

UNIDENTIFIED MALE: Are you ready Georgia boy?

UNIDENTIFIED MALE: I'm ready Utah boy.

UNIDENTIFIED MALE: So you want to know what we're doing at two o'clock in the morning? Constant (UNINTELLIGIBLE) creativity for Dean for America.

E. J. DIONNE, "WASHINGTON POST" COLUMNIST: Lots of people have spun all sorts of theories about the Internet none of which usually panned out and here suddenly you had a candidate who would use this new tool. You know there's no other way to put it. He used it brilliantly.

HOWARD DEAN (D), FORMER PRESIDENTIAL CANDIDATE: You're screaming live from here.

DIONNE: And then you had Joe Trippi who even before he went to Dean believed you could do this differently and you could use the new technology in a different way.

UNIDENTIFIED MALE: OK, where am I blogging?

UNIDENTIFIED MALE: There's only one medium in the world that would allow two million Americans to give $100 to us in one day if they wanted to do it. It's the Internet.

UNIDENTIFIED MALE: It would help if I had a computer that was hooked up to something.

UNIDENTIFIED MALE: Each time we had set a goal that seemed impossible yet somehow you made sure we reached it.

UNIDENIFIED MALE: We grow President Clinton's record raising the most money and we didn't do it with $2,000 contributions.

UNIDENTIFIED MALE: What is it 1358?

UNIDENTIFIED MALE: I know that it sometimes may seem at the end of the quarter that the campaign is too focused on money but how we raise our money is a very important part of the message of Governor Dean's campaign.

UNIDENTIFIED FEMALE: And I think Kerry will fight hard and come back and make up a little bit of lost ground but...

UNIDENTIFIED MALE: Have you heard anything about his money?

UNIDENTIFIED FEMALE: No, I've heard -- I mean I think they're going to -- it's been so tight that I can't help but think that they're going to come out with something more than five.

UNIDENTIFIED MALE: What's your old girlfriend in the Kerry campaign say? Call her up?

UNIDENTIFIED MALE: She won't.

UNIDENTIFIED MALE: Call her up. Tell her you'll marry her.

UNIDENTIFIED MALE: We're going to be in trouble.

PAUL BLANK, POLITICAL DIRECTOR: (UNINTELLIGIBLE) you guys going to break seven, because that's the word on the street. (UNINTELLIGIBLE) in order to tell me. You will take me up on that?

(END VIDEOTAPE)

PHILLIPS: Well, mark your calendar "CNN PRESENTS: TRUE BELIEVERS, LIFE INSIDE THE DEAN CAMPAIGN." It airs Sunday, 8:00 p.m. Eastern, 5:00 Pacific.

Well the nation's job growth is putting pressure on lawmakers to keep jobs tied to federal contracts here at home. Darby Mullany live from the New York Stock Exchange with more on that -- Darby.

DARBY MULLANY, CNN FINANCIAL NEWS CORRESPONDENT: Hi, Kyra.

Well as you know, this whole issue of outsourcing jobs overseas has been in the news quite a lot and now the Senate has voted to block federal contractors from using tax dollars to send work abroad.

The ban makes exceptions for select defense, homeland security and intelligence contracts but critics claim the move may eventually backfire by harming relations with other countries.

Separately, government auditors say that 59 of the 100 biggest publicly traded federal contractors have set up divisions in an international tax haven and many of those contractors have dozens of them.

Offshore tax havens enable companies to ship their income and lower their taxes in some cases, Kyra, by millions of dollars.

PHILLIPS: All right, how are those numbers doing today?

MULLANY: Well we've got stocks in pretty much a holding pattern, holding up pretty well considering the news investors got today on the jobs front. There was a very disappointing jobs report for the month of February and also chip maker Intel is taking a toll on tech stocks. Intel trimmed its sales outlook blaming inventory overflows in Asia. Intel shares are sliding nearly two percent. Overall, though, shares are hovering right around break even. Right now the Dow Jones Industrial Average is up almost 23 points. The NASDAQ is lower just slightly. That is the latest from Wall Street.

Later this hour tough talk for shock jocks, federal regulators are cracking down. CNN's LIVE FROM rolls on after this break.

(COMMERCIAL BREAK)

PHILLIPS: Welcome back to the CNN Center in Atlanta. This is LIVE FROM. I'm Kyra Phillips. Here's what's all new this half hour.

A reminder we're watching the New York courtroom where a jury is deliberating the fate of Martha Stewart. Also ahead, the U.S. Army comes to the aid of an Iraqi girl wounded in the war. She will amaze you.

What will happen to Martha Stewart? Everybody wants to know. Everybody is watching. So is our Mary Snow. She's outside the courthouse of the Martha Stewart trial. What are you hearing Mary?

SNOW: Well, Kyra, certainly a sense of anticipation. I'm not sure if you can see that much behind me but there is certainly a crowd waiting outside the courtroom, so many reporters here on standby waiting for word from the jury. This is day three of deliberations.

Jurors to come back from their lunch hour at 2:00 p.m. and the jury was really being very thorough in the past couple of days in terms of their requests for documents and evidence and hear some of the testimony.

The last note came in late yesterday. The judge made a ruling on that today, and it was about Count VI. So that certainly fueled a lot of speculation if they were going in order, the jurors that is, were they getting closer to coming to a decision about Counts VII and VIII?

So a lot of speculation about how quickly the jury was moving. This is a jury made up of eight women, four men. There are four charges filed against Martha Stewart that this jury is deliberating, five charges against Peter Bacanovic.

Certainly a lot of anticipation outside federal court here in Manhattan as a lot of curious onlookers waiting outside waiting to see if there's word about the fate of Martha Stewart -- Kyra.

PHILLIPS: We noticed the onlookers there behind you, Mary. Actually even a couple coming down the steps look like they just got married. So a lot of action going on at the courtroom.

SNOW: As there has been through the whole trial.

PHILLIPS: You've been inside the courtroom. First of all, give me your impressions of the jury. You've talked a lot about how a number of people coming forward, even the judge saying this is a very intelligent jury. Is this a jury ready to make a decision, and just get this over with and move on? Do you get that feeling?

SNOW: You know, Kyra, they were very attentive. And I noticed a number of jurors took notes throughout this trial, and it's been several weeks. Dozens of documents of evidence. The government alone presented 21 witnesses so a lot to pay attention to. But they seemed very attentive.

And the judge also indicated that once a verdict does come in she is going to instruct jurors who want to talk to us, the media, they will be made available to us if they want to speak, and we can get a sense of what caused them to make their decision.

And certainly one big factor that everyone was looking at, a big question about whether or not Martha Stewart would testify. We now know she did not. In his closing arguments, Robert Morvillo said if you have been disappointed, you probably wanted to hear from Martha Stewart but don't take that into consideration when you're making this decision.

And that was something certainly that he wanted to address to these jurors. Certainly it was a big question whether or not she would take the stand.

PHILLIPS: A number of notable stars coming out to support Martha Stewart throughout this whole process, Mary. Have you noticed any more faces? Does she still sort of receive that kind of famous support?

SNOW: Not in the last couple of days, Kyra. But earlier on in the week, we did see Brian Dennehy come to the courtroom one day. He said that he had worked with her as a stockbroker early on. Of course, Bill Cosby certainly caused a stir when he showed up. He had been a friend of hers. Rosie O'Donnell who was on trial a couple of months ago as well showed up in this courtroom. Barbara Walters showing up one day, as well.

So certainly a number of people have come in to be in -- sit in this courtroom. And the stars, Bill Cosby, Rosie O'Donnell sitting right behind Martha Stewart. And that is one question is whether or not any of that star power would have ever had an effect on these jurors because clearly, it was very visible they were there to support her.

PHILLIPS: We're watching and waiting with you, as soon as you get word, I know you'll let us know. We'll come back to you live outside the courthouse waiting, of course, for a verdict in the Martha Stewart trial. Thanks, Mary.

SNOW: Sure.

PHILLIPS: Well, a signing set back. Iraqi leaders have yet to put pen to paper on an interim constitution. Shi'ites raised last minute concerns over one particular clause dealing with who can veto a provision the Shi'ites see as benefiting the Kurds.

Soldiers aren't the only ones who bear the scars of war. Among the casualties, a 13-year-old girl paralyzed. Elaine Quijano has her story.

(BEGIN VIDEOTAPE)

ELAINE QUIJANO, CNN CORRESPONDENT (voice-over): In some ways, she's no different than others her age. But at 13, Ma'rwa is carrying memories and grief few adults could bear. Last November an errant U.S. mortar shell smashed into her family's farm house north of Baghdad. Five family members died and Ma'rwa was paralyzed from the waist down.

MAJ. MARY ADAMS-CHALLENGER, 21ST COMBAT SUPPORT HOSPITAL: I know we can't help everybody, but I figured if we could just start with this one young girl.

QUIJANO: Physical therapist Major Mary Adams-Challenger met and treated Ma'rwa in Iraq, as did pediatrician Major Sharnell Hoffer.

MAJ. SHARNELLE HOFFER, ARMY NATIONAL GUARD: I wanted to explore different avenues to help her.

QUIJANO: Those avenues proved a complex maze of bureaucracy. But with the help groups like The National Spinal Cord Injury Association, three months later the majors found themselves waiting for Ma'rwa...

ADAMS-CHALLENGER: She's here!

QUIJANO: ... on the tarmac at Andrews Air Force Base in Maryland. They weren't supposed to, but they rushed into the plane's belly to greet her.

ADAMS-CHALLENGER: Hi, baby. It's so good to see you. Thank you.

QUIJANO: Ma'rwa's 15-hour trip to the U.S. marked only the beginning of her journey. Days later at the National Rehabilitation Hospital in Washington...

MA'RWA AHTEEMI, PARALYZED IN IRAQ WAR: Ow.

QUIJANO: ... Ma'rwa told of her need to return to her family and her old life.

AHTEEMI (through translator): I have no option. I have no get my treatment. I have to be able to walk again and then go back home.

QUIJANO: (on camera): Although Ma'rwa does have some feeling in her upper legs, doctors here say it's too early to tell whether she'll ever walk again.

(voice-over): Those who helped bring her here say Ma'rwa isn't alone, and say more needs to be done for other disabled Iraqis.

MARCIE ROTH, NATL. SPINAL CORD INJURY ASSN.: The liberation of those people, their freedom, their independence, must include people with disabilities. QUIJANO: Even for Ma'rwa, there are no guarantees.

AHTEEMI (through translator): My father, he is crying until I am back home there.

QUIJANO: Only the certainty her and her family's lives will never be the same.

Elaine Quijano, CNN, Washington.

(END VIDEOTAPE)

PHILLIPS: Well, six years ago, Luz Cuevas was told that her 10-month-old (sic) baby girl had died in a house fire. But the baby was very much alive, allegedly kidnapped by an acquaintance. The woman now charged with setting that fire.

Last month Cuevas saw six-year-old Delimar at a party and knew by the dimple on her face it was her baby. A DNA test proved it. And yesterday the two met for the first time since their separation. Cuevas's attorney described the emotional meeting on CNN's "AMERICAN MORNING."

(BEGIN VIDEOTAPE)

ANTHONY CIANFRANI, ATTORNEY FOR LUZ CUEVAS: My client told me that she called her mommy and was very excited and happy about seeing her and anxious to see her new siblings.

BILL HEMMER, CNN ANCHOR: How did Ms. Cuevas react?

CIANFRANI: She was thrilled. She was gushing over.

HEMMER: We are told that there's a bit of a communication barrier. The girl does not speak Spanish, the mother does; speaks a little bit of English.

How were they able to overcome that, if at all?

CIANFRANI: The mother speaks enough English to communicate to the child. The mother can talk about foods and colors and how do you feel and that sort of thing. So the mother can communicate, but she understands that she needs to learn English so she can communicate better with her child.

HEMMER: It is also told us here at CNN Ms. Cuevas says that her daughter, Delimar, was hysterical when she found out the mother who she thought was her mom turned out not to be that way.

What sort of complications do you foresee in this relationship?

CIANFRANI: Well, we are working with psychologists to make the transition go as best as it can. It will be a fast transition. Over the next few days, my client will take custody. We do expect some problems, but the natural mom has a loving home and other children and she's just committed to doing whatever is necessary to make the transition go well.

HEMMER: And the natural father has come forward, also. He is now saying that he wants to be included in this process. He's hired an attorney.

What can he expect in terms of involvement in this little girl's life?

CIANFRANI: He will have access, but fairly limited for the near future. There's been enough turmoil in the child's life. She does not need some sort of split custody situation where she's with the natural mom some time and with the natural father some time. So his role will be limited to visitation for the next few months at least.

HEMMER: There is at least one city council member in Philadelphia calling for an investigation into what came out of the investigation of the fire back in 1997. You've said that you are planning a lawsuit against the city.

What do you plan to file suit against in Philadelphia?

CIANFRANI: It would be a civil rights suit in federal court. The Philadelphia officials are all immune under state law. So the only way to get around those immunities is to pursue a civil rights action. And I think the focus is on just about every department. I mean the police department didn't follow up. The fire department bungled it. And the medical examiner did a poor job, also.

So it's hard to imagine a situation where the three responsible agencies didn't do their job, but it seems to have occurred in this situation.

(END VIDEOTAPE)

PHILLIPS: Carolyn Correa, a family acquaintance, has been charged with kidnapping the child and setting the fire to cover her tracks. She's being held on a $1 million bail.

Straight ahead, pictures that will break your heart. Life in Haiti through the eyes of its orphans.

And later, having a fine time on the radio? The FCC is thinking about imposing really big fines for DJs who step out of line.

(COMMERCIAL BREAK)

PHILLIPS: Well, as we continue to tell you the panel of eight women and four men still weighing in the evidence in the trial of Martha Stewart. We're going to go back to Mary Snow in New York. She's outside of the courtroom getting word possibly maybe a verdict -- Mary.

SNOW: That's right, Kyra. The Associated Press now reporting that a verdict has been reached. They are attributing a law enforcement source. The jury was supposed to -- suppose the to come back from lunch at 2:00. It is now 45 minutes after that. And we are told the courtroom doors are open. The judge is not in the courtroom. So we are waiting word from inside the courthouse from the judge, and we will of course, keep you posted. A team of reporters in there and ready to give us the verdict when it is reached.

This jury, as you mentioned, Kyra, eight women, four men deliberating the fate of Martha Stewart and her former stockbroker Peter Bacanovic. They are deciding on four charges against Stewart, five charges against Bacanovic.

There's one charge both share, and that is conspiracy. These charges directly linked to a suspicious trade on December 27, 2001. The government has accused both defendants of lying about the circumstances surrounding that stock trade.

This is a trial that has been going on since late January. Twenty-one government witnesses, defendant Bacanovic's team called five witnesses, but the attorney for Martha Stewart calling just one witness, saying that he really didn't feel that he had a case to answer. And also saying that because of this conspiracy charge, saying there were so many inconsistencies of statements made between Martha Stewart and her stockbroker, that if they had conspired, in his words, this would have been a confederacy of dunces, saying that if they really had conspired they would have been on the same page.

This has been so closely watched. And this followed the insider trading case of Sam Waksal who is now serving time in prison. Sam Waksal was a close friend of Martha Stewart. ImClone founder. This stock trade involves Martha Stewart's sale of nearly 4,000 shares of ImClone -- Kyra.

PHILLIPS: OK, Mary Snow outside the courtroom right there. I was also listening to our 911 there. Still reporting the AP -- holding it on the AP right now that a verdict has been reached in the Martha Stewart case. Mary, we're going to ask you to stand by outside the courtroom there.

I also want to bring in our legal analyst Kendall Coffey on the phone with us. Always talks about big trials like this with us. Kendall, if indeed a verdict has been reached, this happened pretty quickly.

KENDALL COFFEY, CNN LEGAL ANALYST: That's a pretty quick verdict, Kyra. Exactly. They began deliberating Wednesday afternoon. Yesterday, they started late because of some transportation issues. And if have a verdict now, that's not good news for the defendants.

Certainly based on everything we've heard and seen, Peter Bacanovic is in a lot of trouble. And the general sense of the jury questions and whatever tea leaves we could read about what the jury indicated they were doing was to be working right through the prosecution's evidence, basically following the prosecution's road map going count by count.

And if the result of all that is a fairly early verdict, it's very, very troubling for both defendants.

PHILLIPS: Yes, let's talk about that, not good news, if, indeed, , we confirm that there is a verdict. What does that say about the defense? What does that say about the prosecution? Why would this necessarily -- or why would this be not good news?

COFFEY: Well, in no small part, this sort of general rule thumb that unless somehow the prosecution just completely collapses in its case, and that surely didn't happen here, it is a general rule prompt verdicts are good for the government, not so good for the defense.

The other thing here, though, is just the way the jury was zeroing in on prosecution evidence, moving very relatively promptly through it. And that's also something that can't make a defendant feel good.

Certainly when we look at some of the indications where there have been very, very hard-fought outcomes, more often than not, it takes a while for the jury to say acquittal, especially given the way that Douglas Faneuil obviously came across well, the fact that most of the government witnesses pretty well proved what the government said they were going to prove.

So these are definitely moments of very high anxiety for Peter Bacanovic and Martha Stewart.

PHILLIPS: Kendall, I'm going to ask you to stand by for us, please. Go back to Mary Snow outside the courtroom. Looks like a little action starting to pick up out there -- Mary.

SNOW: Certainly the action is picking up outside here, Kyra. But the U.S. attorney's office actually not confirming a verdict. As we mentioned, AP, the Associated Press saying a verdict has been reached, quoting a law enforcement source.

However, the judge is not in the courtroom. So we are waiting for word from inside the courtroom about a possible verdict.

This is day three of deliberations. The last we heard from the jury in terms of notes was late yesterday. They had a question about the perjury charge involving Peter Bacanovic, Stewart's co-defendant. And the judge sent back a note to the jury, first order of business this morning, answering that question. The ruling was seen as not a good sign for Bacanovic.

But that note late yesterday was the last piece of information that the jury had requested, this jury of eight women, and four men. This has been a case that started in mid-January.

And as we've been saying, it's been a lot of evidence, numerous witnesses, nearly two dozen for the government. And, Kyra, going to throw it back to you. As soon as we get more word, we'll let you know.

PHILLIPS: Once again, Mary, you're saying the U.S. attorney is not confirming what the AP is saying that there is a verdict right now at this point?

SNOW: That is correct. Certainly though, Kyra, a lot of anticipation outside this courtroom. And there is an increased police presence outside the court.

So a lot of anticipation, and there are signs that there is some kind of activity that appears to be imminent, but we still have not heard it from the judge.

PHILLIPS: All right, Mary, we'll wait for your sign.

Meanwhile, we'll continue our conversation with legal analyst Kendall Coffey who joins us now by phone. Kendall, we were talking about if there is a verdict, that will not be good news for Martha Stewart's fate.

Let's talk about the charges that she faces. And talk about what could be in store for her. Do you think we will see Martha Stewart serving any jail time?

COFFEY: Well, I think if she's convicted of any of the counts, it's a virtual certainty she'll go to prison. This isn't a situation, Kyra, where there's a moral victory if you're only convicted out of one of four counts or if it's a tie, if there's two convictions and two acquittals.

Any single conviction will throw her into the sentencing guidelines which to some extent really tie a judge's hand. They prescribe a range that in all but very exceptional cases the judge is going to have to impose a sentence within that range. And there have been a lot of different looks at what the calculation would be. It's obviously too early to get anything really definitive. She may be acquitted of everything.

But assuming that there is a conviction on at least one of the four counts, the bottom end of that range is likely going to be about ten months, and it could go up higher, maybe a lot higher, 20 months or more. And there's yet another wildcard in all of the sentencing dynamics, which is very controversial at times, Kyra.

But if the relevant conduct -- and those words mean a lot of frightening things for defendants in this scenario. If all the relevant conduct is brought in in a sentencing, that might be, according to the government, all of the securities fraud stuff, which involves tens of millions of dollars.

You'll recall that the government's case on securities fraud was found to not be sufficient for purposes of a guilty conviction. But under the sentencing guidelines, that same security fraud stuff, again, potentially with tens of millions of dollars involved could be brought into the sentencing equation as relevant conduct. And if that happened, the sentence could be a number of years.

So a lot of variables. Far too early to tell. I think most folks think that this judge would sentence Martha Stewart in the low end of whatever the guidelines would be. But we're not talking probation. We're not talking house arrest. We're talking federal prison if she's convicted.

PHILLIPS: Interesting. The wildcard adds a whole other talking point there. Kendall, hold on there with us. Whether acquitted or whether she's found guilty, what does this mean for her reputation, her brand?

Let's bring Robbie Vorhaus back in, our communication strategist. Talk about both sides of the fence here, Robbie. If indeed she is found guilty, how do you restore your image, your brand, your reputation, your company?

VORHAUS: Well, you look good in stripes first and you make sure that you always have fresh flowers.

No, seriously, I think what she needs to do is she needs to demonstrate some form of remorse some form of humility. Some form of apology. If she doesn't, she cannot rebuild her brand because then she can't get people behind her.

I mean, Kyra, talk about reality TV, I mean, we want to root for the underdog and so many people do love Martha Stewart. I mean, for as many people as we hear who say, oh, I don't care, I'm not following it, she's this or she's that, I've talked to a lot of people who love this woman. Who wish that Martha Stewart were their mom. Who wish that Martha Stewart were their wife.

And all they want is for Martha Stewart to get back in the kitchen with the big smile and to say what, you know what, I've learned a lot and now I'm back with you again, and thank you for your support. And my, isn't this the loveliest apple pie you've ever seen?

An you know, there's a lot of attention right now, but our attention span is short. And if she would do that, she could be out of prison, if she's convicted. If she's acquitted it's another story.

PHILLIPS: Why it another story if acquitted because it seems like it would be easier if acquitted to come forward and say I'm sorry for all of this and everything that happened. See, I was acquitted, let's get rolling again.

I would think it would be easier to do it that way versus if found guilty and in jail, how do you work on your company?

VORHAUS: Well, you're right. Her company is going to continue on. If she's in prison, I hate to make it sound like a mob story, but she's going to be able to influence her company while still in prison.

However, it is all up to her. I mean, this is called Martha Stewart. This is not called some woman from New Jersey. And if she demonstrates that she is humbled, her talent hasn't gone away, her fans haven't gone away, her ability to build a great brand hadn't gone away, all that's gone away is, is her credibility in the way that she acts personally.

So if she's acquitted, it's, again, we're right at the point of looking at how she acts, how she behaves. And she can't act her way through this.

People have asked me, well, she can act her way through this. Listen, so many women are going to be watching her privately, we'll on Page Six or any of the other columns gossip if she yells at a waiter, it's all over. No, she's got to walk a very straight and narrow line here, if she so chooses.

PHILLIPS: From communication strategies back to legal strategies. Robbie, stay with us, please.

Kendall Coffey, let's talk about the different strategies that took place with the attorneys representing Martha, attorneys representing Peter Bacanovic.

COFFEY: The strategies when you lose are always going to get second-guessed. There are two things pretty striking about the process, and that is the way both of the defendants stayed together, teamed together.

Bacanovic was almost assuredly offered something like house arrest and a felony. I would guess something less than a significant jail time to cooperate against Martha Stewart. He didn't. And he stood by her, stood by the story. No doubt he's got some regrets about that right now thinking he may be facing federal prison time.

By the same token, in Martha Stewart's closing argument, her lawyer did not do what I think some lawyers might have done, and that's throw Bacanovic overboard. Say look, the reason we know Martha Stewart isn't a real criminal is let's compare the allegations against her with Bacanovic.

And every comparison would have been positive for Stewart, negative for Bacanovic ranging from the fact that of course Martha Stewart, according to testimony, did not tell people a lie. Martha Stewart did not take an oath and have an actual transcript of her alleged false statement which obviously makes the case stronger, especially when they can charge perjury against Bacanovic and Martha Stewart.

So one of the questions is going to be (UNINTELLIGIBLE) they stayed true friends, was that the right defense strategy for either of them? The other big question is should one or both of them have taken the stand in order to refute the allegations made against them. At the end of all this most of the government's case, which had some very damaging moments, was essentially unrebutted and uncontradicted by the defense.

PHILLIPS: Kendall Coffey, stand by. Robbie Vorhaus, a communication strategist also with us and Mary Snow outside the courtroom waiting to hear if indeed, what the AP is reporting, that a verdict has been reached in the Martha Stewart case.

Our live coverage will continue right after a quick break.

(COMMERCIAL BREAK) PHILLIPS: If you're just tuning in, this just in to CNN. The AP reporting that there is a verdict in the Martha Stewart trial. Our Mary Snow standing by outside the courthouse where things are definitely picking up with police presence and a number of people lining up on the sidewalk there.

Mary, why don't you update us on where we stand right now?

MARY SNOW, CNN CORRESPONDENT: OK, Kyra.

U.S. Marshals coming out of the courtroom now. And the courtroom doors were closed. The jury was supposed to come back from lunch at 2:00. And, certainly, we did see this police presence being increased outside here at the federal courthouse in Manhattan. And, just moments ago, the door closed to the jury -- to the courtroom, that is, indicating that potentially the word that we're waiting for is imminent.

The Associated Press had been reporting that a verdict had been reached. This comes on day three of deliberations, a jury of eight women, four men given the case on Wednesday after being instructed. The last note that they gave to the judge came late yesterday, and that was on count six. There are eight counts in this whole case. So there was a lot of speculation that perhaps the jury had been moving along, and we are awaiting word from inside the courtroom.

Just while we are doing that, let's take a look back at this case that has been so closely watched.

(BEGIN VIDEOTAPE)

SNOW (voice-over): The government's case centered on the charge that Martha Stewart and her stockbroker, Peter Bacanovic, lied about her sale of nearly 4,000 shares of ImClone stock on December 27, 2001. Prosecutors say Stewart and Bacanovic fabricated a story about having an agreement to sell the stock if it fell to $60 a share.

The government relied heavily on their star witness.

(END VIDEOTAPE)

SNOW: OK, Kyra we are just hearing word of a verdict. Count one is guilty, count three, guilty. These are charges against Martha Stewart. Count one was conspiracy, count three making false statements. This had to do with an SEC investigation.

Count four -- all counts against Martha Stewart guilty. These are four counts, each of these counts having a maximum penalty of five years in prison, $250,000 fine. We're now awaiting word for the verdict against her stockbroker, Peter Bacanovic.

Bacanovic, guilty of conspiracy, Bacanovic, guilty of count two, making false statements. Count five is not guilty. That was the charge of making and using false statements. Count six, perjury is guilty. That was the question that the jury had been asking about. And obstruction of justice, we're still waiting for count seven against Bacanovic.

So, Martha Stewart found guilty on all four of these charges. And there had been signs that, because of the jury's questioning, the notes that they were giving to the judge, that they were really going through this evidence and perhaps this was a good sign for the government in making their case.

Count one was conspiracy. This was the charge that she and Bacanovic -- it's the only charge that they had been charged with together. The false statements charge against Martha Stewart was making false statements during an investigation with the SEC in February of 2002, shortly after her sale of ImClone stock.

All three specifications of that first conspiracy charge, she was found guilty. And those specifications include obstruction of an agency proceeding. That was the SEC investigation, making false statements and perjury.

In terms of the false statements, count three and count four, they had to do with SEC interviews that were done. And count eight, obstruction of justice, her attorney had made the case that she didn't even know that there was an SEC proceeding against her when she was being interviewed about this ImClone stock.

Peter Bacanovic -- we're just getting word. The false statements charge against Martha Stewart, there had been seven statements that she was charged with making false statements. We are finding that the jury in this case found that one, only one was found that she did not make a false statement. So, that was six statements that the jury found to be guilty.

And we are getting word, too, of Peter Bacanovic, obstruction of justice. That's the only charge, obstruction of charge, guilty, as had been with Martha Stewart, and that was the SEC proceeding. Certainly, so much activity outside of this courtroom, as you can probably see behind me, as crowds came running out.

This case, really, the main witness in this case had been Doug Faneuil, the government's star witness. He had been the assistant to Martha Stewart's stockbroker. And, really, what the prosecution had said to the jurors in the closing argument, saying, if you believe the testimony of Doug Faneuil, then this case is really over.

And that really rested on his testimony over four days. He pled guilty to a misdemeanor. The defense tried to say that his credibility was in question and that he was really just testifying for a more lenient sentence from the government -- Kyra, back to you.

PHILLIPS: Wow, a lot going on, Mary. Great job. I saw that you were getting word there as everything was sort of unfolding live on the air. I'm going to let you gather your thoughts, get everything with more specifics there.

We're going to bring Kendall Coffey back in now. We've got him up live in Miami. Kendall, you're getting the word. Let's try and lay this out in layman's terms here. Let's start with Martha Stewart, guilty on all four counts. Let's talk about each one of those counts and what this means now for the domestic diva.

KENDALL COFFEY, ATTORNEY: Well, conspiracy, two counts, false statement, obstruction of justice. It means she's not going to be in a significant role again in a publicly traded company.

It means that, unless this is somehow undone on appeal, she's a felon and she's going to prison. There's going to be a whole separate process in terms of what that sentence might be, but it's not going to be probation. It's not even likely to be a club fed kind of thing. She's actually going to be going to a real prison, like a real criminal.

PHILLIPS: Now I'm being told that trading has been halted on Martha's stock.

Tell me, as this does come down -- you even just made a comment, Kendall, about her company. What does this mean now just for everything that has her name, her brand, her reputation, her company stock now being -- or trading halted now on Wall Street.

COFFEY: Well, it's going to be devastating, because her company is so identified -- that is a company that is really she, herself, and Martha Stewart. And with her no longer able and even in a future capacity to become a CEO, with her reputation absolutely in tatters and shattered right now, that company is obviously facing an extraordinary, extraordinary challenge.

Meanwhile, for Martha Stewart and Peter Bacanovic, this has got to be a shocking, devastating moment beyond anyone's worst nightmare. And it's gradually sinking in on both of them that everything they've done in their lives is being turned upside down and that they will be, at some point, led into a jail and put behind bars, unless there is the highly unusual result of a reversal on appeal.

They still have appellate rights, of course. But, Kyra, the percentage chances of getting a case, especially this one, where the judge was very careful, thrown out by an appeals court is not good at all.

PHILLIPS: Now, looking as we see each count come up one by one that she has been found guilty of, we're talking about five years, maximum penalty five years prison, $250,000 fine.

Realistically, though, Kendall, how do you think it's going to play out? Do you think -- how long -- well, do you think she will spend time in jail, for how long, realistically, and the fines?

COFFEY: She's going to take -- definitely spend time in jail, Kyra. It's not going to be five, five, five. You don't simply add up the four five-year sentences, because what they do now is an analysis of the conduct. And there's actually a point system, where something prepared called a pre-sentence investigation report prepared by an arm of the court will actually do a numerical calculation. And that number of points will take the judge to a recommended zone of months. At the very low end, what she's facing could be 10 months to maybe 16 months.

But there are a lot of ways where that range could be calculated much higher, perhaps a year and a half to two years. And we talked about a little earlier, Kyra, something called relevant conduct. It's the big and terrifying wild card in all these sentencing controversies from the standpoint of a defendant, because it means even conduct that a defendant was acquitted of -- in this case, the judge threw out the securities fraud -- that conduct can still be brought in, in sentencing if the government wants to really hammer Martha Stewart and put her away for a number of years.

PHILLIPS: All right, so now the wild card does come into play.

COFFEY: It can be considered. We don't know what the government's position is going to be on that.

They may take the view that, look, they have hammered her enough, that they have proven their point beyond anyone's expectation. This is a resounding triumph for the Department of Justice, the first really high-profile case in any of these corporate corruption scandals, not an easy or surefire case for the government. And they couldn't have won it more impressively, all four counts sustained against Martha Stewart, other than the very controversial novel securities fraud count.

By any measure, this is a huge day for the Department of Justice and for the federal prosecutors that so relentlessly and effectively pursued Martha Stewart and Peter Bacanovic.

PHILLIPS: I want to talk to you more about that, how this is pretty historic for the Department of Justice, what type of domino effect we could see within corporate corruption and talk more about jail time, too. Hold on, Kendall.

Let's get back to Mary Snow out in front of the courthouse.

Mary, what's -- it's gotten -- well, no, it hasn't calmed down at all, actually, behind you. Things are still pretty crazy.

SNOW: Yes, it is, Kyra, things not calming down at all, in fact, more crowds coming to gather, waiting to see Martha Stewart as she leaves this courtroom and certainly her attorneys, Peter Bacanovic, his attorneys.

And, also, we're waiting to hear from some of the jurors to see what it was that convinced them to convict Martha Stewart on all counts against her. There were four counts. We'll just briefly go through them again, conspiracy, making false statements -- there were two counts of false statements -- and obstruction of justice. Peter Bacanovic, there were five counts against him. One, he was found not guilty. That was producing a false document. That was the document that he said he had that proved that he had an agreement with Martha Stewart to sell this ImClone stock. And, Kyra, on the making of false statements, there were seven specifications, for example, on one of the charges against Martha Stewart, the jury finding six of them to be guilty on the specifications. And this was statements that she had made to investigators in an SEC investigation about her sale of ImClone stock.

This happened in the winter of 2002, shortly after her sale of that stock on December 27. And on the false statements against her, as I said, there were two charges. Most of these statements that she was alleged to have made false statements, she was found to be guilty.

Martha Stewart had been accompanied each day of this trial by her daughter, Alexis, along with her team of lawyers, one of them even being her son-in-law on her team. And we're waiting to hear from that jury makeup. It is eight women, four men, the defense so confident in their case that her lead attorney presented just one witness, saying that he really didn't feel that he had a case to answer, that he felt that this was a case based on circumstantial evidence.

But, certainly, there was some very damaging testimony in the government's case -- Kyra.

PHILLIPS: All right, if you're just tuning in, Martha Stewart guilty on all four counts, our Mary Snow bringing us all the breaking information outside the courthouse.

Also with us, legal analyst Kendall Coffey.

Kendall, you were mentioning that this is quite a historic day for the Department of Justice. I'm just wondering, is this a pretty historic day for corporate corruption cases? What does this mean? What kind of message does this send out to stockbrokers, to company CEOs? Will it make an effect, do you think, as we move forward when it comes down to how corporations operate?

COFFEY: Well, I think, in the short term, it will.

We've seen other situations where there have been very impressive waves of prosecution that get everybody to behave better or at least more carefully for a while. It has to be pursued year after year, though, because, let's face it, 10 years from now, they're not going to be talking about the Martha Stewart case.

But the immediate impact is dramatic and an extremely positive thing for the Department of Justice. Let's consider other people who are in the position of a Peter Bacanovic, somebody that's being told, cooperate with us. You'll get less time. We're not going to give you a free pass. We're not going to give you a get-out-of-jail-free card. But you're going to do a lot less time if you cooperate with us. Take your chances and look what happened to Peter Bacanovic.

There's no doubt, Kyra, he had offers to cooperate against Martha Stewart. He decided to roll the dice. Now he's going to jail for years. On the other hand of it, with respect to a Martha Stewart, I think the message is going to be, don't think that you are smart enough and clever enough to get beyond the ability of federal investigators at this point. They did a number of sophisticated and relentless things. They also proved, in the final analysis, that, when they brace and when they interrogate even your best friends, they're going to get evidence and they're going to get to the truth.

Martha Stewart no doubt, based on this jury verdict, thought that she and Bacanovic would come up with a story. All their friends would stand by them. Douglas Faneuil would wave the flag everybody else was. But when the feds put the heat on, all of that crumbled. And I think that's something that everyone in corporate America's going to have to remember.

PHILLIPS: Kendall, stay with us. Thank you very much.

I'm just being told that, June 17, sentencing for both Martha Stewart and Peter Bacanovic.

Allan Chernoff, just coming out of the courtroom, joins us live now outside of the courthouse.

Wow. You were there. You saw it. Give us all the details, Allan.

ALLAN CHERNOFF, CNN CORRESPONDENT: Well, Kyra, Martha Stewart herself really did not appear to show any emotion, as well as her co- defendant, Peter Bacanovic.

In fact, the most emotion we saw I would say came from the lead prosecutor, Karen Seymour, who appeared to be holding back tears, apparently tears of joy for her great victory, because there's no way to describe this but a slam dunk for the government.

As you've been reporting, Martha Stewart guilty on all counts and Peter Bacanovic guilty on all of the counts, except for the false documents charge, so clearly a very dramatic win for the government here. The courtroom was packed; 2:00, everybody returned from the lunch break and there was a buzz in the courtroom that a verdict had been reached. But we all waited in there for a full hour. The U.S. attorney was there, David Kelley, a boss of the prosecutor here.

And that was a real indication that a verdict had been reached. But, again, we had to wait for a full hour. Finally, the judge came back in, said that, we have a verdict. The jury walked in one by one. The judge announced the verdict and then polled each member of the jury individually, and they all said, "Yes, Your Honor," when asked if that is your verdict, each individually.

And the judge then set a sentencing date of the 17th of June at 10:00 a.m. The defendants also will have to report Monday to the probation office here. And after that, the judge said, this matter is concluded. And she adjourned court. So that's exactly what happened in the courtroom only moments ago -- Kyra.

PHILLIPS: Martha's daughter, Alexis, Allan, by her side through all this. Did you, by chance, get a chance to see how she handled the news?

CHERNOFF: Also not a tremendous reaction, really could not see any great expression. As we've reported before, through virtually the entire trial, Martha Stewart inside has shown relatively little emotion, grim-faced. And she remained grim-faced as the jury was polled, as the judge made her announcement, and the same for her daughter, Alexis Stewart, who sat in the row, the first row of the observers, right behind Martha Stewart, sitting next to Greg Morvillo, the son of the lead defense attorney, Robert Morvillo.

So, that was pretty much the reaction in the courtroom. And, really, we can say that this was a relatively swift verdict, because, keep in mind, two defendants were being considered here. There were a lot of counts. And there were a variety of specifications for the false statement counts, and also for the perjury count confronting Mr. Bacanovic.

So, a lot for the jury to go through. They seem to have gone through it quite quickly and to have, really, as the judge said, done a thorough job. And the judge did compliment the jury this morning, saying they clearly appeared to be a very intelligent jury. The questions that they were posing to the judge really did seem to be right on target in terms of their analysis -- Kyra.

PHILLIPS: Allan, I don't know if you've got your running shoes on, but I'm just now getting word that both defendants, Martha Stewart and Peter Bacanovic, exited through a side door there at the courthouse. It would be interesting to see if anyone would be able to catch up with them, but we're being told both defendants leaving through a side door of the courthouse.

So let's hurry on over to Wall Street.

Darby Mullany, I was told earlier that trading was halted on Wall Street. What can you tell us about Martha's stock, Darby?

DARBY MULLANY, CNN CORRESPONDENT: That's right, Kyra.

Shares of Martha Stewart Living Omnimedia, the company founded by Martha Stewart, were halted right before the verdict was read. Shares had jumped nearly 20 percent before the verdict was read and before the halt. This is the highest level since June 2002. There was a very dramatic reaction among traders here.

A lot of people gathered in front of the post, waiting for the verdict to come down. As the headlines came down over the ticker, you could hear the traders going "oh, oh," as each one of the different counts Martha Stewart was announced to be found guilty on.

And, also, you could even hear some boos after the verdicts for Peter Bacanovic came over on the ticker. Keep in mind, this is the place that Martha Stewart took her company public back in 1999. She was down here at the New York Stock Exchange serving muffins and coffee. She was really the darling of Wall Street at that time. Her stock had a strong IPO. And, at a certain time, she was even named New York Stock Exchange board of director. She later gave up that position once these charges came clear.

So, really, a dramatic ending, and you might wonder why the stock was up so much today. Many analysts I've talked to say that, look, just the anticipation that this story will come to a conclusion is perhaps the best thing for Martha Stewart Living Omnimedia, the company, so it can put all this legal wrangling and drama behind it and move forward -- Kyra, back to you.

PHILLIPS: All right, Darby Mullany, live from the New York Stock Exchange there, thank you so much.

MULLANY: Sure.

PHILLIPS: We're going to take it back to outside the courthouse now, where the verdict has been read in the Martha Stewart trial.

Our Jeffrey Toobin was inside the courtroom, joins us now to talk about just how it all went down.

Jeffrey, your impressions?

JEFFREY TOOBIN, CNN SR. LEGAL ANALYST: This was a rout. I mean, this was just a total rout.

I mean, Martha Stewart seemed to have a defensible case going in, but the jury just wasn't buying at all, the prosecutors, you know, winning every count against her, three of the four counts against Peter Bacanovic. Martha Stewart is almost, almost certainly going to prison. It's just an extraordinary moment, because, you know, this was -- I mean, is, I think, one of the dozen best-known women in America, a woman who was a billionaire on paper a little more than two years ago, who is still worth several hundred million dollars. And she's going to be going to jail.

PHILLIPS: Strengths and weaknesses, Jeffrey. As you watched this all go down, what sticks out in your mind?

TOOBIN: I think mostly weaknesses.

This was such an avoidable problem for Martha Stewart. If she -- remember, she wasn't even charged with insider trading. If she had simply said nothing, if she had simply told the truth about what happened, about this single stock trade involving $250,000 worth of stock, if she had simply either told the truth or said nothing, none of these problems would happen.

The frustration, the anger, the incredible rage she must be feeling right now is just extraordinary.

PHILLIPS: You know, Kendall Coffey was saying this was a historic day for the Department of Justice. As an attorney, as a legal analyst, what do you make of the decisions that came down today, and do you agree with that?

TOOBIN: You know, I changed on this case. I was very skeptical going in. But I watched this whole trial. And Martha Stewart was convicted because she was guilty. And the evidence in this case, there was no single silver bullet, no smoking gun, but the accumulated evidence against her was simply extraordinary. No one who sat through that trial could be surprised by this verdict. The story that she told to investigators after she made the stock trade, it simply didn't add up.

She claimed that, you know -- just to recall what this case is really about, she sold 3,900 shares in a company called ImClone in December 27, 2001, and she claimed that she sold it because she had a preexisting agreement to sell the stock when it hit 60. Prosecutors said she sold it because she was tipped that the CEO of the company, Sam Waksal, was selling his shares. Obviously, she sold because she was tipped.

The $60 agreement was simply fiction. And that's what the jury found. And, as someone who sat through the trial, I agree with the jury.

PHILLIPS: Jeffrey Toobin, our legal analyst outside the courtroom there, thank you so much.

Want to take it back to New York now.

Robbie Vorhaus, communications strategist, boy, a lot of spinning to do now, Robbie.

ROBERT VORHAUS, COMMUNICATIONS STRATEGIST: Well, Kyra, truth is the ultimate spin.

And I think that this is a case where -- when Martha Stewart brought her company public, one of the biggest issues, one of the biggest risks that they were taking was, people were saying, what if you die? What is going to happen to the company? And they brought in all these actuaries about the length of time that she would live. And people said, you know, we can build this company over the next 20 years and have a company that endures.

Well, that all changed. And the big thing about this is, is our focus right now is on Martha Stewart. But what about "Martha Stewart" magazine and all the people who subscribe and all the people who produce the magazine, her TV show, a public company, Kmart? For all of the glory that she got in being so smart in building that Martha Stewart name, today, it is all falling apart. It is all going to have to be changed, and there are going to be some very, very busy people over the next week trying to figure that out.

PHILLIPS: You say falling apart. You say change. Is the brand dead?

VORHAUS: No, I don't think the brand is dead.

And, again, I think that right now what we're going to see is -- we're in crisis communications mode. I mean, everybody here needs to regroup. Martha is now convicted. She is possibly and very likely going to be a felon. Over what period of time? If it's a long period of time, what are we going to do with the brand then? If it's a short period of time, let's follow it and see what happens.

But the brand is wounded. Is it mortally wounded? We have yet to see.

PHILLIPS: Well, let's say that she does, indeed, go to jail and you were sitting next to her, Robbie. What would you tell her?

VORHAUS: I would tell her to please just simply admit it now that the guilty -- that the jury has found you guilty. Please, use this as an opportunity to show that money does, in fact, if you allow it to, corrupt, and that you can not play by different rules as anyone else.

I would tell her she's done wonderful things for style, for women, for this -- for a whole generation of people who want to improve their world through homemaking, through cooking. She's great. But, at the same time, as we just heard, if you watched that case, you know that she is guilty. And she is guilty on stupid things, not -- not -- not incredibly complex things, just greed.

PHILLIPS: All right, our Robbie Vorhaus, communications strategist, thank you so much, joining us there live from New York.

Let's go back to outside the courtroom, where our Allan Chernoff was inside the courtroom, also with our legal analyst Jeffrey Toobin, a number of our reporters getting a feel for how it all went down, how everybody reacted.

Allan, are things calming down a bit, or no?

CHERNOFF: No, I wouldn't say so at all, Kyra.

We've had the jurors now walking out of the courthouse. Some of them are remaining inside to be interviewed by the media. But those who step out, they are being swamped by the press. And we will certainly have tape of that as soon as we can get it to you.

Now, in terms of the charges that have been filed and, of course, that Martha Stewart was found to be guilty on, let's quickly run through them, Martha Stewart, first of all, found guilty of conspiracy. And there were three portions to this, conspiracy to obstruct justice, false statements and perjury. And she was found guilty of all those objects of the conspiracy.

False statements -- remember, there were two false statement charges against Martha Stewart. She was found guilty on both of them. The first false statement charge involved in an interview that was conducted on February 4 of 2002 with the Securities and Exchange Commission and the U.S. attorney's office here in New York. And there were seven different statements that Martha Stewart was charged with there, seven different statements where the government alleged she lied.

On six of those seven statements, she was found to have lied, to basically have been guilty there. This was essentially Martha Stewart saying that she had an agreement with Peter Bacanovic to sell her ImClone stock if the price fell to $60 a share, which it did back on December 27, 2001, the day that she did sell her ImClone stock.

The second false statement count involved statements she made on April 10 in an interview with the SEC and the U.S. attorney's office. And there, there were two specifications that she was found guilty of, two of three specifications. And then the last count against Martha Stewart, obstruction of justice, she was found guilty on that one -- Kyra.

PHILLIPS: Allan Chernoff, outside the courtroom, thank you so much.

As Allan went over the counts Martha was found guilty of, the charges carry up to 20 years in prison, but Stewart likely will serve less time, according to our legal analysts. Sentencing is set for June 17. Her ex-broker, Peter Bacanovic, also found guilty on charges, including conspiracy, perjury, and obstruction of justice.

Now, just getting a statement, interesting to read this letter, Robbie Vorhaus, our communications strategist, saying that he would advise Martha to come forward and apologize and talk about what she did openly and honestly. We're just now getting this letter from Martha Stewart from her Web site.

It says, "Dear friends, I'm obviously distressed by the jury's verdict, but I continue to take comfort in knowing that I have done nothing wrong and that I have the enduring support of my family and friends. 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's your continued support that will keep me going until I am completely exonerated. Sincerely, Martha Stewart."

Martha also talking to our Larry King back in December of 2003. Here's what she had to say then.

(BEGIN VIDEO CLIP)

LARRY KING, "LARRY KING LIVE": Is all of this very shocking to you?

MARTHA STEWART, MARTHA STEWART LIVING OMNIMEDIA: No one is ever prepared for such a thing.

KING: I wouldn't imagine.

STEWART: No one. And no one is ever strong enough for such a thing. No one is -- is -- you know, you have no idea how much worry and sadness and grief it causes.

KING: And I would imagine especially if someone thinks, I didn't do anything wrong.

STEWART: Exactly.

KING: So that's got to drive you berserk.

STEWART: Well, but that -- having done nothing wrong, allows you to sleep.

KING: It does?

STEWART: Allows you to continue your work, gives you -- gives you the opportunity to think about other things. But there's always the worry. I mean, a trial's coming up.

(END VIDEO CLIP)

PHILLIPS: Martha Stewart, once again, talking to our Larry King back in December of 2003. Sticking by her statement, even in a letter today, as the jury found her guilty on four counts, saying that she still believes she has done nothing wrong, and she will keep going until she is completely exonerated.

We're going to go back to Allan Chernoff outside the courtroom there in New York -- Allan.

ALLAN CHERNOFF, CNNFN CORRESPONDENT: Kara, critical to the jury reaching a verdict of guilty was their belief in the star government witness, Douglas Faneuil, who had been assistant to the stockbroker, Peter Bacanovic. Mr. Faneuil's attorney has just given us a statement. He said, "Doug Faneuil had no interest in having this case brought. He came forward because his conscience told him it was the right thing to do. He was solely a witness telling the truth."

A statement from the attorney representing Douglas Faneuil, the government's star witness in this case, who clearly had quite a bit of credibility with the jury -- Kara.

PHILLIPS: Allan Chernoff, outside the courtroom there. Thank you so much.

Kendall Coffee, our legal analyst, once again joining us live out of Miami, taking a look at the newest bit of information that we just received.

Kendall, Robby Vorhaus (ph), a communications strategist, had a different opinion, thinking that this was a time for Martha to come forward and apologize and give a very detailed interview, confession. We're getting this statement now from her Web site saying she is sticking by the fact that she has done nothing wrong and she will keep going until she is completely exonerated. Tell us what happens next.

KENDALL COFFEY, CNN LEGAL ANALYST: Well, I guess she's saying she's going to appeal it. But that's the tradeoff you have to decide about. Because when you're going to go into a sentencing, Kara, the best thing you can do is acknowledge, accept responsibility, say you made a mistake, and move on, and hope that the judge will be lenient in the amount of time. And really make a statement that the whole world will probably listen to with some appreciation and perhaps sympathy. People are forgiving. But if she's going to continue to deny, deny, deny, after the government presented an overwhelming case, after the jury made finding after finding of her guilt, that's a colossal mistake. Because it means she's really just even committing more collateral damage to her own reputation, which frankly has been devastated by the events of today.

PHILLIPS: You believe she will spend time in jail, right?

COFFEY: I do.

PHILLIPS: OK. Let's talk about that. You know, there's obviously been a lot of criticism over the years on how famous people, star power types are treated, where they are sent to jail, what type of conditions the jails are.

I mean, is this someone that's going to be surrounded, if indeed she does go to prison, by a bunch of thugs? Or is she going to have a private area with different treatment?

COFFEY: I would be surprised if she lands in some kind of a club fed and gets to work on her golf handicap. I certainly think that in a case like this, with everybody watching, what a judge is going to want to do is go by the book. And take the points, calculate it, say what the prison sentence would seem if this had been Martha Jones, give a sentence based on that.

And then the Bureau of Prisons, I think, in terms of assigning to a facility of incarceration, is also going to lay it right down the middle. With everything that's gone on with so many people watching, I don't think anybody's going to want to be accused of giving her kinder and gentler treatment because of who she is.

PHILLIPS: You talk about this being a historic day for the Department of Justice, Kendall. Once again, do you believe this is a pretty historic move? A major message to corporations, to CEOs, to stockbrokers, to financial houses?

COFFEY: All of the above. And I think it really is a very powerful tribute to what the Department of Justice can do.

I think the defense community scoffed a little bit at the ability to get convictions against two people who are very powerful, very smart, who had impeccable reputations, based upon largely the testimony of a 28-year-old guy who is an admitted liar and admitted drug user who got a sweetheart deal from the government. But instead of becoming someone who looked like a lying rat selling out his former boss and his former client, he came off as a younger Matthew Broderick. And I think the job that the government did in presenting this cooperator witness tells them that they are really learning how to get to the top of their game in presenting white collar cases.

There are other things in here that I think are powerful lessons, too. But the way that Douglas Faneuil came across as a cooperating witness is going to be textbook 101 for government prosecutors.

PHILLIPS: Kendall Coffey, legal analyst. Thanks so much, Kendall.

We're going to go back outside the courthouse. Allan Chernoff there.

Allan, I'm wondering, Dominick Dunne working on another book?

CHERNOFF: PHILLIPS: Dominick Dunne is with us right now. He was among the dozens of writers sitting in the courtroom through the entire trial.

And Dominick, thank you for joining us. First of all, your reaction to the verdict?

DOMINICK DUNNE, AUTHOR: Well, I was stunned by the verdict. I did not expect this at all. And I know I'm a prejudiced person, because she's a friend of mine, a good friend of mine. And Peter Bacanovic is a friend of mine.

And I thought she might have been guilty of one of the charges. It just never occurred to me that she would go down like this.

CHERNOFF: Do you think there was a huge mistake made by the defense attorneys on either side?

DUNNE: Well, I think it probably would have been better if she had taken the stand now. But I mean anybody can -- in hindsight can say that. They seemed like -- I mean, she had Robert Morvillo. Well, you can't get any better than him. He's a great lawyer.

And I don't know. I'm just staggered by it.

CHERNOFF: Well, certainly the judge did tell the jury not to consider the fact that Martha Stewart didn't take the stand, not to consider the fact that Bacanovic didn't take the stand.

DUNNE: That's right. That's right. That's right. And maybe they didn't. But I think that it might have helped now in hindsight.

You know, you can always tell when the jury walks in to a room that not one juror looked toward the defense table. That's a signal that things are not going to be good.

CHERNOFF: You had a sense as soon as the jury walked in?

DUNNE: Yes.

CHERNOFF: And it was only moments later that we did hear from the judge.

DUNNE: Yes. And there was one juror especially who I always felt was -- felt very close to Martha. And when she didn't look, I thought, oops.

CHERNOFF: And that was indicated in the questioning of the jurors prior to the beginning of the testimony.

DUNNE: Yes.

CHERNOFF: One juror even said that, "I follow her closely, use some of the recipes Martha Stewart had recommended." And in spite of that...

DUNNE: Yes. Anyway, it was a terrible shock to me.

CHERNOFF: Dominick Dunne, thank you for joining us.

DUNNE: Thank you.

CHERNOFF: Kyra, back to you.

PHILLIPS: All right. Allan Chernoff, thank you so much, outside the courtroom there.

Just now getting this over right off our computer. This comes from one of the jurors in the Martha Stewart trial. This is from Sara Walker (ph): "This is a victory for the little guys. No one is above the law."

Actually, this is coming to us from -- Sara (ph), I apologize -- actually the juror, a black male. It says here -- the quote, "This is a victory for the little guys. No one is above the law."

Now I'm being told that this is Bacanovic's family here. Peter Bacanovic's family coming down through the cameras. I'm told that's his mother.

Is that right?

A picture there of his mother leaving the courtroom as she was inside witnessing her son, obviously the ex-broker of Martha Stewart, as he was found guilty on charges, including conspiracy, perjury, and obstruction of justice.

Once again, if you're just tuning in, we are continuing to follow the breaking news. Martha Stewart convicted today of obstructing justice and lying to the government about the sale of her ImClone stock. The charges carry up to 20 years in prison. But we are told by our analysts likely she will serve less time.

Sentencing is set for June 17. Stewart also is saying that she plans to appeal now. And as we told you, her ex-broker, Peter Bacanovic, also found guilty on charges, including conspiracy, perjury, and obstruction of justice.

Quite a historic day for the Department of Justice, according to our legal analyst, Kendall Coffey. We're going to continue our live coverage now. Judy Woodruff picks it up from here with "INSIDE POLITICS."

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Spy Gear Used to Track Osama; 9/11 Commission Schedules Hearings; Girl Presumed Dead to be Reunited with Mother; Martha Stewart Jury Focuses on Perjury; Gas Prices Rising>


Aired March 5, 2004 - 13:00   ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
KYRA PHILLIP, ANCHOR: Democracy delayed in Iraq. A last minute hitch holds up an historic moment indefinitely.
The hunt for bin Laden. Will a new round-the-clock search cast a net that finally snags the al Qaeda leader?

A cop's routine traffic stop turns into a wild ride. You'll hear from him about how it all went down.

LUZ CUEVAS, MOTHER OF DELIMAR VERA: I'm so happy they found my daughter.

PHILLIPS: She waited six years. A mother finally meets the daughter that police thought had died.

From the CNN Center in Atlanta, hello, everyone, I'm Kyra Phillips. Miles is off. It's March 5. CNN's LIVE FROM starts right now.

The stage is set, the pens are poised, the whole world's watching and nobody's signing.

An interim Iraqi constitution was supposed to be signed hours ago by the 25 members of the Iraqi governing council. The "T's" were crossed, the "I's" were dotted Monday. But that was Monday.

Today, the Shiites changed their tune, setting off a chorus of complaints, CNN's Ben Wedeman is watching and listening -- Ben.

BEN WEDEMAN, CNN CORRESPONDENT: Yes, Kyra.

Coalition officials now say the chances that this interim constitution will be signed tonight are slim.

Apparently, Shiite members of the governing council have raised objections over a clause in this interim constitution that would have essentially granted three Kurdish provinces in the north veto power over a -- rather, a permanent constitution that would have been voted upon in a referendum later, rather early next year.

Now, according to a coalition spokesman, Dan Senor, at this point, the coalition is going to let the Iraqis work out this problem.

(BEGIN VIDEO CLIP) UNIDENTIFIED MALE: This is an issue they're working through. And in fact, Wolf, the posture that Ambassador Bremer has taken is one of real sort of hands off. He is not forcing a resolution; he is observing.

He believes that in four months, we on the political side of the occupation are going to be gone. And Iraqis are going to have to deal with these issues themselves. Iraqi political leaders are going to have to work with one another. And they have to get used to it now.

So he has now said, "I'm not going to force you to the table. I'm going to let you work through it yourselves. You've got to get used to it." That's exactly what's happening.

(END VIDEO CLIP)

WEDEMAN: And this certainly is, Kyra, a very fascinating spectacle for Iraqis.

Of course, it was only a year ago that Saddam Hussein was certainly in power. And back then, you never would have seen any sort of public disagreement on any matter within the ruling elite that Saddam headed. Certainly, anybody who did raise any sort of public objection would have probably paid a very high price.

Now this interim agreement, which is actually called the temporary administrative law, was supposed to be signed into effect on Wednesday, but because of the Tuesday suicide bombings, which left more than 180 dead in Baghdad and Karbala, it was postponed after the government declared a three-day period of mourning.

Now this document is certainly a step forward toward a transition of power from the U.S.-led coalition to some sort of Iraqi government. And it enshrines such concepts as freedom of religion, freedom of speech, women's rights, things that really were not part of the Iraqi political scene in the days of Saddam Hussein -- Kyra.

PHILLIPS: Ben Wedeman, live from Baghdad, thank you.

And CNN has learned that the search for Osama bin Laden will soon be a 24/7 operation. It wasn't exactly a part-time job before, but a new array of high-tech surveillance is designed, in one official's words, to throw the net over the world's most wanted terrorist.

CNN's Barbara Starr has the details.

(BEGIN VIDEOTAPE)

BARBARA STARR, CNN CORRESPONDENT (voice-over): CNN has learned the new strategy to catch Osama bin Laden includes high-tech surveillance to keep a 24/7 watch over the border region between Afghanistan and Pakistan.

Officially, none of this is acknowledged.

GEN. JOHN ABIZAID, U.S. CENTRAL COMMAND: Of course, you've read, heard in the press the idea that Osama bin Laden is surrounded and we have him cornered and we know where he is, et cetera, et cetera. And of course we don't know that.

STARR: But U.S. officials believe bin Laden may be feeling the heat from Pakistani military forces now hunting him and could start to move. So a round-the-clock surveillance could pay off.

As one official told CNN, "We are putting the pieces in place to throw the net over him. Everything will be in position within days."

Those intelligence gathering vehicles include: U-2 spy planes flying for hours at 70,000 feet or above, taking pictures, using radars and intercepting communications.

Unmanned Predators will take a closer look, flying at 25,000 feet. Its cameras see vehicles and people.

Special radars operate through clouds. Some may have Hellfire missiles.

Ground sensors may also be set around mountain passes, listening for vehicles. Streams of data will be sent via satellite to analysts for quick action. The military has brought up satellite transmission capacity in the region, making sure it can be respond quickly.

(on camera) If Osama bin Laden is spotted moving, waiting U.S. Special Forces will try to capture or kill him. But Osama bin Laden has slipped away before.

Barbara Starr, CNN, the Pentagon.

(END VIDEOTAPE)

PHILLIPS: In D.C., the A.G.'s in ICU. That's Attorney General John Ashcroft getting intensive care at George Washington University Hospital for gallstone pancreatitis.

Our Dr. Gupta tells us that's a potentially serious condition, in which a migrating gallstone acts like a cork on pancreatic enzymes.

A spokesperson says that Ashcroft thought he had stomach flu until the White House physician told him to hit the E.R. He's being treated with antibiotics, and Dr. Gupta says surgery may be in order.

Two and a half years after 9/11, 2001, the independent panel investigating lapses in U.S. intelligence finally has a schedule for public hearings.

CNN's Suzanne Malveaux has the times, dates and places at the White House -- Suzanne.

SUZANNE MALVEAUX, CNN CORRESPODNENT: Now here's some of the details that we're learning. It's going to be eight days of public testimony, beginning with March 23.

That is when the former, as well as current secretaries of state, as well as secretaries for defense, will go ahead and publicly testify, talking about the counter-terrorism policy before September 11, perhaps what the administration did or did not know before that tragedy.

They're also learning as well that former President Clinton, former Vice President Gore in the next couple of weeks will go ahead and testify privately before the full commission. They have yet to work out exactly what date.

And then, of course, still being negotiated with the White House, President Bush and Vice President Cheney has said that they agree they'll answer questions before the chair and the vice chair of that commission.

The commission really is trying to push so that they go ahead and answer those questions before the full investigative body. That is still being worked out at this time.

But of course, a lot of pressure on the Bush administration to go ahead, to answer some of those serious questions, those controversial issues. And of course a lot of pressure on the commission itself to wrap up its work in the next three months -- Kyra.

PHILLIPS: Meanwhile, president of Mexico, Vicente Fox, scheduled for a visit, also talking about laser visas (ph).

MALVEAUX: Well, actually what's happening at the Crawford ranch this coming weekend is what you're going to find -- not any major public announcements or policy changes here, but the two leaders getting together, becoming reacquainted.

These two leaders, as you know, have had sort of a mixed, some might say, a tumultuous relationship. You know that it was Mexico that did not support the U.S. war with Iraq, that the U.S. essentially delayed opening the border to Mexico immediately following September 11.

We're told that both leaders, however, have warm relations, that they're catching things up. We do expect they'll talk about immigration, about security issues, and the potential of perhaps relaxing some of the regulations for Mexicans who have visas -- Kyra.

PHILLIPS: Suzanne Malveaux, live from the White House. Thank you.

More follow-up on the Bush team's use of Ground Zero in a campaign ad. More relatives of 9/11 victims spoke out today against what they consider the exploitation of a national disaster and a betrayal of a promise.

A woman who lost her brother says that Mr. Bush promised never to use the Twin Towers for political gain.

We should note this event was sponsored by the liberal advocacy group Move On.

Earlier today, New York's 9/11 mayor defended the ads and the administration.

(BEGIN VIDEO CLIP)

RUDY GIULIANI, FORMER NEW YORK CITY MAYOR: People are going to judge this president even in history based on how he handled September 11, 2001, that very day, and then the long aftermath of it, including the war on terrorism.

So this was done in a tasteful way. It's an ad about the group of challenges the president has faced, the recession, other things, and September 11, 2001. You'd almost not be able to do the ad and talk about the challenges if you couldn't mention the truth.

(END VIDEO CLIP)

PHILLIPS: Well, the Bush re-election camp agrees with Giuliani, insists it won't back down.

Not so with the credit card company MBNA. That firm is cutting up its Spirit of America Mastercard after complaints from 9/11 families and the New York City Fire Department.

A portion of the Spirit cards proceeds went to a 9/11 charity. That company says it didn't amount to much, because the card never caught on.

Martha Stewart's waiting for a good thing in a New York courtroom. We're LIVE FROM New York coming up.

Also, caught on tape, a deputy's dramatic drive after a routine traffic stop.

Also ahead...

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: Not too many people get that opportunity, I don't believe. But I'm thankful that I got it.

(END VIDEO CLIP)

PHILLIPS: It's an amazing comeback. A man's journey from a homeless shelter to the boxing hall of fame. You won't want to miss this.

(COMMERCIAL BREAK)

(WEATHER REPORT)

(COMMERCIAL BREAK)

PHILLIPS: It's a mystery story with a happy ending. Yesterday, a mother had a tearful reunion with her daughter, six years after the child was presumed dead.

Robin MacIntosh with affiliate KYW picks up this amazing story. (BEGIN VIDEOTAPE)

CUEVAS: They said they're going to call me.

ROBIN MACINTOSH, KYW CORRESPONDENT: So hopefully you'll see her?

CUEVAS: I hope.

MACINTOSH (voice-over): It was the morning after the night Luz Cuevas had been waiting for for six long years. Only hours after seeing her daughter, Delimar, at an undisclosed location near the Burlington County family court in Mount Holly, Luz Cuevas was already planning the family reunion in Philadelphia.

CUEVAS: It will be, like, a family reunion with the whole family together. The teachers, you know.

I believe in my heart that she's going to...

MACINTOSH: Last night in Mount Holly, a judge began the reuniting process, setting up a series of visits between the little girl, and not only with her mother, but her father, Pedro Vera (ph), who came to the hearing and left with the same stuffed animal he had meant to give the little girl.

MICHAEL LUBER, ATTORNEY FOR FATHER: The ultimate goal for everybody is to see that this young lady is reunited with her natural parents.

MACINTOSH: So today's the first day of starting a new life for Luz Cuevas, a new life with the daughter she was told was lost in a fire but now has been finally found.

CUEVAS: The psychiatrist say that we have to call her Aliah, because she had that name for the years, you know, and then I say to her, the real name is Delimar.

(END VIDEOTAPE)

PHILLIPS: Thanks again to KYW for that report. Well, final custody transfer to the girl's mother is expected on Monday.

Other news across America, a prelim hearing under way in Grand Forks, North Dakota for the man accused of kidnapping college student Dru Sjodin. She disappeared from a mall last November. The man charged, Alfonso Rodriguez, denies kidnapping her.

A victory today in Wisconsin for opponents of same-sex marriage. The state assembly there voted 68-28 to amend the state constitution to ban same sex marriages and civil unions. The measure now moves to the state senate.

And in California, gay marriage goes before the state supreme court. Lawyers for the city of San Francisco will file briefs with the state's highest court. They argue that state law does not require local officials to obey statutes that they believe are unconstitutional.

The California state attorney general is trying to invalidate hundreds of same-sex marriages recently sanctioned in San Francisco.

Evidence of perjury, that's what jurors appear to be focused on in the Martha Stewart trial. During deliberations, jurors questioned the judge about a perjury charge against co-defendant Peter Bacanovic.

CNN's Allan Chernoff live with the details now outside the courthouse in New York.

Hi, Allan.

ALLAN CHERNOFF, CNN CORRESPONDENT: Hi, Kyra.

And it appears to be a very savvy jury. The question was actually posed to the court late yesterday. And the question sent attorneys for both sides scrambling to legal libraries, to write a memo to the judge, to try to get the answer they wanted the judge ruling this morning.

And the judge ruled that, in fact, the message log of Martha Stewart's assistant, Ann Armstrong, can be used to back up testimony from Miss Armstrong regarding the message that Peter Bacanovic left back on September 27, 2001, the day that Martha Stewart sold her ImClone stock.

This, judge ruled, can be used in order to convict on perjury.

So obviously, not very encouraging for the stockbroker, Peter Bacanovic. But that's all we can say at this point.

There is no verdict just yet, and there definitely will not be one before 2 Eastern Time because the court is out on a lunch break at the moment. So we'll have to begin our waiting once again at 2 p.m.

The judge herself commented this morning and said, "This is clearly a very intelligent and probative jury." So everybody in the court seems to be impressed by what the jurors are asking for here.

Kyra, it seems they are deep into this, and they are doing the work they're supposed to be doing. They are asking good questions, and they're looking at some of the very relevant testimony and evidence -- Kyra.

PHILLIPS: You mention a lot of good questions. Tell us some, Allan.

CHERNOFF: Well, they'd been asking about the testimony regarding December 27, testimony from Peter Bacanovic, to the Securities and Exchange Commission.

Also, they've been looking at phone logs from that very day. Everything very pertinent to the core of this case, which is of course, whether or not Martha Stewart and her stockbroker Peter Bacanovic lied about her sale of ImClone back on December 27 of 2001. Stewart and her broker claim that they had an agreement to sell the stock if it fell below $60 a share. And the government has maintained that simply was a cover-up for the fact that Martha Stewart got an insider tip that Sam Waksal, then head of ImClone Systems, was trying to dump all of his shares -- Kyra.

PHILLIPS: You've had a chance to be pretty close to Martha Stewart. What's her demeanor like?

CHERNOFF: Martha Stewart has really been -- you could say almost stone-faced in the courtroom. I know walking in and out of the court, you often see her smiling, waving to a few supporters.

But inside, she is clearly nervous. There's no question about that. Really not smiling at all.

Peter Bacanovic in contrast, seems to be quite a bit cooler. Once in awhile, he'll be smiling, joking around with his lawyers, or family members. So a contrast between the two defendants here.

PHILLIPS: We continue to wait for that verdict. Allan Chernoff, thank you.

Straight ahead, what's fueling rising gas prices?

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: I think that there's no reason for it whatsoever, and I think we, the consumers, are being gouged.

(END VIDEO CLIP)

PHILLIPS: Ahead on LIVE FROM, a look at some of the real reasons you're paying more at the pump.

And if two heads are better than one, this little croaker's having triple the fun. The video of the day comes in for an amphibious landing, right here on LIVE FROM.

(COMMERCIAL BREAK)

PHILLIPS: Getting around costs big bucks these days, especially if you drive. Gas prices are skyrocketing, and motorists are pumping mad.

CNN's Eric Philips reports it looks as if things will actually get worse before they get better.

(BEGIN VIDEOTAPE)

ERIC PHILIPS, CNN CORRESONDENT (voice-over): If you drive to and from work, or if you drive for work, you know firsthand what analysts have been telling us for weeks now. Gas prices are up.

UNIDENTIFIED FEMALE: I feel as though these gas prices are going up by the minute. It's really, really ridiculous. PHILIPS: Consider the rise in regular gasoline prices over just the last two weeks. On the East Coast, motorists have seen an increase of three cents over the last two weeks. In the Midwest, it's gone up four cents; two cents in the Gulf Coast states; five cents in the Rocky Mountain region, and a whopping 20 cents out West, reaching more than $2 a gallon.

UNIDENTIFIED MALE: I think that there's no reason for it whatsoever; and I think we, the consumers, are being gouged.

PHILIPS: Experts say while it's unusual for prices to spike this early in the year, fewer refineries processing less oil is creating more problems.

JUSTIN MCNAULL, AAA: The global supply has been diminishing due to some cutbacks in OPEC production. And at the same time, we've seen demand torque up as the economy's revved up. China's using a lot more crude oil.

PHILIPS: The founder of a website called GasPriceWatch.com says there's no good explanation for the skyrocketing prices.

BRAD PROCTOR, GASPRICEWATCH.COM: I look at these refinery closures. Those just didn't happen in a week. These were planned a year or two earlier. So the industry knew that these short falls were going to start to occur and should have been able to ramp up other capabilities to fill in for this.

PHILIPS: Industry analysts say as usual prices may go even higher as we approach Memorial Day.

Eric Philips, CNN, New York.

(END VIDEOTAPE)

PHILLIPS: Paltry payrolls and a dwindling workforce. Darby Mullany, live from the New York Stock Exchange with a look at the jobs picture -- Darby.

(STOCK REPORT)

PHILLIPS: Coming up, buy a Big Mac, you could get a chunk of cash for dessert.

(COMMERCIAL BREAK)

PHILLIPS: The desk and the pens are there, but the document to sign is not. In Iraq, there's been a delay in today's planned signing of an interim constitution. The governing council is now discussing last-minute Shiite concerns over how to veto proposed permanent law.

Attorney General John Ashcroft under careful monitoring in the ICU now. He was hospitalized last night for a severe case of gallstone pancreatitis. Doctors say that Ashcroft is being treated with antibiotics. They expect to know more in about 48 hours. In Miami, abandoned boat. The firefighter actually jumps into the water to pull the burning boat back to the dock. It was later extinguished.

PHILLIPS: After a night of severe thunderstorms and twisters in the south central part of the country, heavy rain is still falling in Oklahoma. There's been flooding and evacuations all throughout the state.

Reporter Kevin Sims of affiliate KOCO, live from Kingfisher with the details and probably some waders.

KEVIN SIMS, KOCO CORRESPONDENT: Yes. I wish, Kyra. Unfortunately, I wasn't that smart and just wore jeans today.

It is a chilly, but fortunately, so far, dry day, Kyra, in Northwestern Oklahoma. But the evidence of that fast moving storm is just about all around us.

We're here in a -- just off the highway in a hayfield just north of the town of Kingfisher. You can see the water was all the way up past this barbed wire fence overnight, as it continued to rise and push all the debris that came basically up on this fence.

It looks as though we're overlooking a pond or a lake out here, but that is actually a pasture. And then beyond that is the train that was derailed because of the high water.

Now first I'm going to take a look in town at the high water there in Kingfisher. Kingfisher Creek is actually -- The train derailment, again happened about 8 -- 5 a.m. this morning.

As basically, we were told there was a flash flood warning here in Kingfisher County and at that time, all traffic -- all train traffic was halted.

But then once that warning expired, train traffic resumed. And the conductor there, the engineer, just -- basically, it was too dark to see the water, the high water on the track.

So we're told about a dozen or so cars derailed. Nothing hazardous. That's the good news, is they got in there and checked and so far all they can tell on board was a bunch of new vehicles headed to some dealership.

And then they also checked the engine to see if the engine itself was leaking any diesel. That does not appear to be the case.

They did have three crew members on board they had a tough time getting in there to rescue because all the roads leading up to the engine and the derailed cars -- well, there were no dry roads to get in there to them.

Meanwhile, in town, Kingfisher Creek went over its banks. They had to evacuate some folks in town and take them to nearby Churches, which is just down the road. But as we're told, most folks actually went to nearby relatives. Not many folks had to go to the shelters.

But still, about a dozen or so businesses downtown completely overran by water. No injuries, however. But there is a lot of drying out and a lot of cleaning up here to do in northwestern Oklahoma -- Kyra.

PHILLIPS: Kevin, I'm curious. When you woke up this morning what was it like when you opened your door?

SIMS: It was actually very sunny. We were out in it all day yesterday, and it was about 60 degrees yesterday and then dropped five degrees or so and dried out.

But in Oklahoma City, which is just about 45 miles southwest of here, southeast of here, rather, it was dry. That's the good news here.

One thing we are watching out for, Kyra, is as all this water drains out of the pastures, out of the fields, out of the creeks and goes into our local rivers, we know the system here. And once one town can flood, then, you know, five, six, town hours later, the towns downstream can flood as well.

So that's what we're keeping an eye out for right now.

PHILLIPS: Kevin Sims, with our affiliate, KOCO. We sure appreciate your time, Kevin, thank you.

Polling for the presidency, which White House candidate has the most support ahead of the election? President Bush has 46 percent support in a new A.P./IPSOS public affairs poll, while Democratic rival John Kerry is close behind with 45 percent. Ralph Nader's impact also registering; the independent candidate has six percent support.

Now we take a look into John Kerry's campaign coffers. The Democrat plans to start a 20-city fund-raising tour. Says his goal is to raise $105 million.

Earlier in the primary race, Kerry took out a mortgage loan to keep his campaign afloat.

But as CNN's Jeanne Meserve reports, that loan is now under scrutiny.

(BEGIN VIDEOTAPE)

JEANNE MESERVE, CNN CORRESPODNENT (voice-over): In December, John Kerry's bid for the candidacy was on life support, its vital signs fading. He resuscitated it by borrowing $6.4 million to inject into his campaign.

MICHAEL MEEHAN, KERRY CAMPAIGN ADVISOR: It allowed us time just to go and talk to voters in Iowa and New Hampshire, which were the first two critical, in January, tests, without having to leave the states to go raise money. MESERVE (on camera): so essentially this money kept him in the race?

MEEHAN: Absolutely.

MESERVE (voice-over): Kerry got the money by taking out a mortgage on the Boston home he owns with his fabulously wealthy wife, Teresa Heinz Kerry. Nineteen Lewisburg Square is one of the swankiest addresses in the city.

The Kerrys bought the one-time convent for $1.75 million in 1996 and did extensive renovations. What used to be a chapel is now a kitchen.

What is the house worth? For 2004, the city assessed it at $6.6 million. But an appraisal for the Mellon Bank, which gave Kerry his loan came in at almost double that, $12.8 million.

The valuation is critical, because under federal election commission rules, a candidate can contribute only half the value of jointly held property.

LARRY NOBLE, CENTER FOR RESPONSIBLE POLITICS: Well, if the house is worth less than $12.8 million, then you start getting into the realm of Teresa Heinz having made an illegal contribution to his campaign.

MESERVE: Neither the bank nor the campaign will make the appraisal available. But Debra Taylor, who runs a Boston listing service, says it's on target.

DEBRA TAYLOR, LISTING INFORMATION NETWORK: I'm not surprised at all. I think it sounds absolutely normal. It follows the rule of thumb, a property selling at twice the assessed value.

MESERVE: Boston's tax assessor insists his number is in line with comparable sales.

Now, there is another issue, the payoff. Under the new McCain/Feingold campaign finance law, Kerry's campaign could retire the debt, but only before he receives the nomination.

After that, virtually all of it would have to come out of his pocket. He cannot tap in to his wife's estimated half a billion dollar fortune. His own worth is a comparatively modest $2 million. His Senate salary, roughly $158,000 a year. His monthly payment, $15,000.

MEEHAN: He has said that he will pay it back.

MESERVE (on camera): How? With what?

MEEHAN: Senator Kerry's a man of substantial means, some that might not be readily apparent from his tax returns or from his personal disclosure form. MESERVE: The Kerry campaign has made the first two payments, but doing more would divert crucial funds from Kerry's face-off with President Bush, whose campaign has already begun an advertising onslaught with some of the $!50 million it has raised already.

(on camera) Ironically, the very loan that helped Kerry win early could hobble him in the end.

Jeanne Meserve, CNN, Washington.

(END VIDEOTAPE)

PHILLIPS: Now, long before his infamous Iowa rant, Howard Dean was considered the Democratic presidential front-runner.

This Sunday, "CNN PRESDENT" gives you an exclusive look at Dean and his staff. "True Believers" documents life inside the Dean campaign.

Here's a preview.

(BEGIN VIDEOTAPE)

UNIDENTIFIED MALE: We want Dean! We want Dean!

UNIDENTIFIED MALE: We want Dean! We want Dean!

UNIDENTIFIED MALE: We want Dean! We want Dean!

UNIDENTIFIED MALE: Who do we want?

UNIDENTIFIED MALE: Dean!

UNIDENTIFIED MALE: When do we want him?

UNIDENTIFIED MALE: Now!

E.J. DIONNE, "WASHINGTON POST" COLUMNIST: I think he got such a good ride in the middle of the summer.

JOE TRIPPI, FORMER HOWARD DEAN CAMPAIGN MANAGER: You can't there for that long and talk without committing news.

DIONNE: The fact that he's been able to almost fly under the radar meant that an awful lot of people felt, both among his opponents and in the press, that they'd better catch up and start giving some critical scrutiny to this guy who at that moment, people were say, my God, he's going to sweep to the nomination.

TRIPPI: The whole damn pack of 'em's coming.

The most telling quote in the past couple weeks was in "TIMIE" magazine. When one of those cowards had a blind quote. And that's exactly what they were, freaking chicken (expletive deleted).

Because one of them said it's like the mafia. Everybody wants one of the other families to hit him.

MIKE MURPHY, MCCAIN 2000 PRESIDENTIAL CAMPAIGN ADVISOR: That's true, that's what always happens in multi-way primaries. You see, you're all sitting around saying, "Well, we don't want the guy. He'll fight back and scruff up our beautiful white tuxedo. We'll wait for those, you know, psychos over at Lieberman to do it."

SEN. JOE LIEBERMAN (D-CT), FORMER PRESIDENTIAL CANDIDATE: Let me say to Governor Dean, he has said he wouldn't take sides. But then he has said Israel ought to get out of the West Bank, and an enormous number of those settlements ought to be broken down.

That's up to the parties in their negotiations, not for us to tell them.

TRIPPI: Are you guys looking at this? This is, like, such (expletive deleted), literally. This is the most disgusting thing anybody's done in this race so far. This is more disgusting than anything Kerry's ever done.

I mean with all the crap you can hit us with above the belt, which would be legitimate and let's have a debate, you're going to go below the belt?

We should put out a statement that this is among -- I want to make sure I'm not overreacting. The only thing I can think is they're just try to get a Dean/Lieberman headline.

UNIDENTIFIED MALE: That's what they're doing.

TRIPPI: But, I mean, to do that -- I never thought I'd get to see that (expletive deleted) out of them.

UNIDENTIFIED MALE: I guess he doesn't want to be vice president again.

(END VIDEOTAPE)

PHILLIPS: Well, you don't want to miss the all-new "CNN PRESENTS" that takes you inside that political process. "TRUE BELIEVERS: LIFE INSIDE THE DEAN CAMPAIGN," Sunday, 8 p.m. Eastern, 5 p.m. Pacific, right here on CNN.

Well, they found a new home, costumes, records, photographs, and more. Some Jackson collectibles, no longer in the famous family. We'll tell you where they went.

Plus, it's been a long time coming. How this former athlete went from a boxing ring to a homeless shelter and now the hall of fame.

And later -- they say two heads are better than one. What about three?

(COMMERCIAL BREAK)

PHILLIPS: Well, a routine traffic stop was anything but routine for a Georgia highway patrol officer. His brush with danger yesterday was all caught on tape.

Morse Diggs from affiliate WAGA reports.

(BEGIN VIDEOTAPE)

MORSE DIGGS, WAGA CORRESPONDENT (voice-over): This is police video of a traffic stop on the downtown connector that turned out to be anything but routine.

The single occupant pulled over for driving in the HOV lane.

CPL. JACK LAWRENCE, GEORGIA HIGHWAY PATROL: It's a female.

DIGGS: Corporal Jack Lawrence took us through what happened.

LAWRENCE: Before I left my vehicle, they radioed in and told me that the vehicle was stolen.

DIGGS: Now, watch what happens next as he gives the motorist instructions.

LAWRENCE: Come out of your vehicle. Come out of the car.

UNIDENTIFIED FEMALE: Please, I'm sorry. I'm sorry, I'm sorry...

LAWRENCE: Working on instincts and training, I just jumped through the driver's window, got in the car with her, trying to subdue her. Her and I are wrestling over control of the vehicle, trying to get the car in park, trying to turn the key off.

DIGGS (on camera): You're supposed to be cool, but you must have been a little bit scared, a little bit anxious.

LAWRENCE: Sure. I mean, anybody would be in the same situation. But, you know, you have to do what you have to do sometimes. And that was better than her going down the road at high speed and maybe getting somebody killed.

(END VIDEOTAPE)

PHILLIPS: Well, later, police say that the female driver has a criminal history and had outstanding warrants.

Well, professional golf's first transsexual player missed the cut today for the women's Australian Open in Sydney.

Mianne Bagger fired a second round 74 after a shaky opening round 84. Bagger says her second day score gives her credibility.

This week's event on the Australian ladies tour offered Bagger a rare opportunity to play. Now under current rules, women in tournaments sponsored by the LPGA and the U.S. and European golf associations must be born a female.

In the world of boxing, comebacks are part of the game. But for one former welterweight championship contender, his comeback may be life-changing. Ernie Lopez has gone from homeless to hero.

Reporter Barry Carpenter, CNN affiliate KDKF in Dallas-Ft. Worth, has his amazing story.

(BEGIN VIDEOTAPE)

BARRY CARPENTER, KDKF CORRESPONDENT (voice-over): It's been a long road for 58-year-old former welterweight contender Ernie "Indian Red" Lopez. He arrived at DFW with a one-way ticket to Los Angeles and a newspaper with him on the front page.

ERNIE LOPEZ, BOXER: I didn't think I'd ever be on the front page here of "The Star-Telegram."

CARPENTER: But Lopez was no stranger to the sport page or boxing magazines. That's him in his Indian Red warm up. And here in 1970 a title fight loss to Jose Napoles.

He and his wife divorced in 1972. Then, in 1973, he lost another title fight to Napoles.

(on camera) Those losses were apparently so devastating that Lopez simply disappeared, wandering the country for years, ultimately, winding up here at a Ft. Worth homeless shelter.

(voice-over) Lopez would sometimes contact family members. But for the past ten years, he vanished. But family members in Los Angeles found out that Lopez had been inducted into the California Boxing Hall of Fame.

L.A. police tracked him to this shelter and this bed. Now he and his tattered duffel bag are off to L.A.

LOPEZ: You know, got a hold of me and said they're going to put me in the boxing hall of fame down in California. I got a pretty good record so...

CARPENTER: 51-10-1 to be exact, but the biggest win may be seeing his family again. Former wife, four kids, and 23 grandchildren, who won't let him disappear again.

LOPEZ: That's what he told me. They says, you better start keeping in touch with us.

CARPENTER: The Presbyterian night shelter has been his home for months. Friends there say the once fierce fighter is incredibly humble.

DENNIS PENNINGTON, PRESBYTERIAN NIGHT SHELTER: We didn't even know he boxed. He doesn't go around talking about it. He's just humble. He's a genuinely nice guy.

CARPENTER: Lopez may have never been a world boxing champion, but he's earned the title of L.A.'s most wanted dad.

LOPEZ: That's going to be nice. That will be good. Not too many people get that, get that opportunity, I don't believe. But I'm thankful that I got it.

CARPENTER: In Dallas, Barry Carpenter, for CNN.

(END VIDEOTAPE)

PHILLIPS: Well, hold the centerfold and forget the cleavage, are you man enough for this new magazine? We're going to lay out the details.

Plus this next time you step into a McDonald's, you could be a millionaire and you don't have to order a thing. Darby Mullany, watching the store from the New York Stock Exchange -- Darby.

DARBY MULLANY, CNN CORRESPONDENT: Well, that's right. How would you like cash with that quarter-pounder? We'll have details on a supersized settlement when LIVE FROM continues after this break.

(COMMERCIAL BREAK)

PHILLIPS: A European collector has hit the Jackson jackpot.

The unnamed person has bought a collection of Jackson family memorabilia, including costumes, gold records, photographs and documents, belonging to Michael Jackson and his family.

Henry Vaccaro Sr. of Asbury Park, New jersey, says he acquired that the collection to sell only after a nine-year legal battle with the Jackson family. No word on whether Michael Jackson's famous sequined glove is included.

Well, if you're one of those rare men who loves to shop until you drop -- it's not so rare any more -- help is as close as your magazine stand.

A new men's magazine devoted solely to shopping is hot off the presses. Jeanne Moos reports "Cargo" has something for every man.

(BEGIN VIDEOTAPE)

JEANNE MOOS, CNN CORRESPONDENT (voice-over): If you think shopping is for girls, check out the new men's magazine.

UNIDENTIFIED MALE: Where's the cleavage, though?

MOOS: Cleavage? The barest chest in this issue belonged to a guy with half his body hair trimmed.

Whether you're in the market for shavers or sweaters or bags, now there's "Cargo."

(on camera) It's a shopping magazine for men. But don't look that way...

UNIDENTIFIED MALE: What kind of shopping?

MOOS (voice-over): From sunglasses to shaving cream, "Cargo" looks for the coolest, tests for the best.

(on camera) So, did Stubble Stop stop stubble?

UNIDENTIFIED MALE: No.

MOOS (voice-over): It's the hottest new category in magazine publishing. "Cargo" just had its launch party.

(on camera) Have you seen the section on shaving?

(voice-over) A rival men's shopping magazine called "Vitals" is due out in the fall.

"Cargo" is the guy's version of "Lucky," the smash hit shopping magazine for women.

UNIDENTIFIED MALE: It's about time we get something for us.

MOOS: Steven Wilfrog (ph) is seen modeling a suit in "Cargo."

UNIDENTIFIED MALE: We don't show it on models. We show it on real guys so you can see what it would look like on you.

MOOS: "Cargo" found its cover boy hanging out in a New York City park. The magazine zeroes in on camcorders and cell phones and cars. It will suggest the best nose hair clippers or binoculars that double as a pair of flasks.

(on camera) Would you look at a shopping magazine for men?

UNIDENTIFIED MALE: When you showed me the gadget stuff, I think so. I thought there were some cool things in there, yes.

MOOS (voice-over): "Cargo" has regular features like: "Honey, does this make me look gay." There are stickers to tag items you like.

UNIDENTIFIED MALE: It's more of a metrosexual magazine.

MOOS (on camera): Do you consider yourself a metrosexual?

UNIDENTIFIED MALE: I do, actually. I do.

MOOS: You care how you look and...

UNIDENTIFIED MALE: Very much so. Right, right.

MOOS (voice-over): Maybe guys will shop for boxers when they learn 74 percent of women prefer them over briefs.

Closet metrosexuals can add to their closets.

(on camera) You like the Nike?

UNIDENTIFIED MALE: Oh, yes.

MOOS (voice-over): Jeanne Moos, CNN, New York.

(END VIDEOTAPE)

PHILLIPS: All right. Any CNN producer can tell you that Jeanne Moos pieces are very hard acts to follow, but we think we can do it today.

Meet the three-headed frog of Somerset, England. Though that's a bit of a misnomer. This guy is more like three frogs fused together. He or she or they turned up at a day care center, and wildlife experts want to know just what were those kids up to?

You want fries with that cash prize? Darby Mullany, LIVE FROM the New York stock exchange with that story -- Darby.

(STOCK REPORT)

PHILLIPS: Attorney General John Ashcroft remains in intensive care at this hour being treated for gallstone pancreatitis. Almost 20 million American Suffer from gallstones, but far fewer experience what Ashcroft's going through. Dr. Gupta takes a closer look at his condition.

(COMMERCIAL BREAK)

PHILLIPS: Guilty or not guilty? Live pictures from a New York courtroom, where Martha Stewart awaits her fate.

Jobs in America, new numbers out today. Are they adding up to a stronger or weaker economy? Depends on whom you ask.

(BEGIN VIDEO CLIP)

LUCIA NEWMAN, CNN CORRESPONDENT (voice-over): Their eyes are as huge as their stomachs are empty. It's been more than a month since food donations arrived at this Port-au-Prince orphanage.

(END VIDEO CLIP)

STEWART: Caught in a conflict, the youngest victims of a desperate situation.

And a dramatic swim for shore. A firefighter's daring determination to save a burning boat. From the CNN center in Atlanta, I'm Kyra Phillips.

This hour of CNN's LIVE FROM starts right now.

And we want to take you straight to New York. Mary Snow standing by, outside the courthouse as we still await a verdict in the Martha Stewart trial -- Mary.

MARY SNOW, CNN CORRESPONDENT: Kyra, the jury is expected back to lunch. They had an hour lunch. And this is day three of deliberations. This morning, a ruling by the judge came on a question by the jurors regarding count six. And that had to do with the count of perjury against Peter Bacanovic. It was seen as not a good indication for him.

The judge ruling on a two-witness question. Basically, what it came down to is that the judge ruled that a piece of document, a phone record, could be counted as a witness for the testimony of the same person who kept those records.

This had to do with one of the specifications of the perjury charges having to do with a phone message that Martha Stewart's assistant took from Peter Bacanovic on December 27, 2001, the day she sold her ImClone stock.

The jury is considering four charges against Martha Stewart, including conspiracy, two count of false statements and obstruction of justice. There are five counts being considered against her co- defendant and stockbroker, Peter Bacanovic. Each of these counts carries a maximum penalty of five years in a prison and a $250,000 fine.

One thing that could be said about this jury, it has been very thorough over the past couple of days, asking for several pieces of documents, and a number of questions.

And regarding that latest note that they sent out late yesterday, the judge ruling on that today saying it is clear that this is a very careful and intelligent jury by the questions they have been asking so awaiting a verdict. This is day three of deliberations -- Kyra.

PHILLIPS: All right, Mary. I know you and Allan Chernoff both had a chance to see Martha Stewart up close. What's your feeling? What are your impressions about how she's taking all this in?

SNOW: She seems to be taking it in stride and, you know, for the days that she has been in the courtroom really not showing much expression, pretty much consistent and even this morning going into the courtroom.

I was behind her in the line for the metal detector. She seemed very relaxed, smiling at times. She's been accompanied every day to the courthouse by her daughter Alexis by her side, sitting with her each day in the courtroom and she appeared to be relaxed this morning going into the courthouse -- Kyra.

PHILLIPS: All right, Mary Snow we'll be talking to you I'm sure quite a bit this hour. Thanks Mary.

SNOW: Sure.

PHILLIPS: The other story that we're following, the U.S. economy ads jobs. The White House says it's good news. The number is less than one-fifth of Wall Street's expectations and kind of says that it's bad news. The jobs report for February also shows almost 400,000 people who want jobs have given up looking. Officially, they no longer count as employed. All tolled the U.S. jobless rate remains at 5.6 percent.

February's 21,000 new jobs pales in comparison with estimates not to mention the 200,000 minimum that analysts say is necessary, month in, month out to constitute a job market rebound.

Well, for the 43rd month in a row the manufacturing sector lost jobs and none of this has escaped the notice of the man who wants President Bush's job come January.

Alluding to the $2 million plus jobs the U.S. economy has shed in the Bush administration, John Kerry says and we quote: "At this rate, the Bush administration won't create its first job for more than ten years."

Mr. Bush is crunching numbers today and preparing to mend some fences. We get the details from CNN's Dana Bash. She's in Crawford, Texas -- Dana.

DANA BASH, CNN WHITE HOUSE CORRESPONDENT: Hi, Kyra.

Well this jobs report is certainly something, as you said, that the White House is trying to put their best face on saying that essentially at least the economy didn't lose jobs over the past month but it is hard when talking to White House aides to get a sense that they are -- it's easy to understand that they are trying to mask their disappointment.

Let's take a look first of all at the numbers. In February, this new job number shows 21,000 new jobs were created and they also revised January's job numbers downward, only 97,000 jobs were created. It was over 100,000. That was the initial report.

Now you remember the White House estimate put out in a book by the president's Council of Economic Advisors was 2.6 million new jobs. Now that is a number that the White House has since backed off of essentially saying that it won't necessarily be that but certainly Democrats have been focusing on that number and with these new job numbers for this month it makes it clear it will be pretty hard to get to that 2.6 million new jobs number by the end of the year.

Now, the Secretary of Commerce Don Evans put out a statement saying: "While we are creating jobs, today's unemployment numbers underscore the urgent need for action on the president's plan to lift the heavy domestic cost burdens that are holding back accelerated job creation.

Factory activity is rising and manufacturing job losses are slowing but President Bush won't be satisfied until every American seeking work finds a job."

And that is what we hear from the president, Kyra, as he travels around the country, just yesterday in California sitting with some members of California's population there talking about the fact that they are actually benefiting from his tax cuts, that businesses are benefiting from his tax cuts, trying to put the best face forward on this.

But campaign aides say that they are sticking to his plan to make the tax cut permanent and are still pitting John Kerry, his Democratic opponent, as somebody who will reverse those policies and doesn't necessarily have a plan himself for turning around this job loss -- back to you, Kyra.

PHILLIPS: Dana Bash live from Crawford, Texas.

It's a long way to November but if the presidential election were held today it would be a very close race according to a new AP poll. Forty-six percent of those surveyed support President Bush, 45 percent back John Kerry and Independent Ralph Nader showing he could be a force to be reckoned with gets six percent support.

To Iraq on what was billed as a momentous day the signing of a document that paves the way for self rule. It was supposed to happen about six hours ago. Our Baghdad Bureau Chief Jane Arraf and a lot of others are still waiting what happened Jane?

JANE ARRAF, CNN BAGHDAD BUREAU CHIEF: Well, Kyra, what happened according to the American coalition officials is democracy, which they say is a messy business. Now essentially some of the Shia members decided that they couldn't quite live with one of the clauses in this draft constitution even though it had been unanimously agreed to a few days ago.

So, starting this morning they have been talking it over and, as the ceremony time came and went and hours later they are still discussing how they are going to get around this roadblock. The council spokesman, though, Hamid al Kifai says it's not that serious.

(BEGIN VIDEO CLIP)

HAMID AL KIFAI: And some members have some concerns and they are discussing these clauses and of course there is no disagreement on the principles, no disagreement whatsoever. We have got the most progressive constitution in Iraq's history. This constitution is an achievement.

(END VIDEO CLIP)

ARRAF: An achievement certainly but that disagreement they're discussing is, while a technicality, a very important one. It essentially sets out whether the Kurds could have a veto over a permanent constitution, something that they're still discussing -- Kyra.

PHILLIPS: I'm curious. There is a number of issues causing this roadblock right Jane? What is it and what is it that's new in this type of environment, maybe issues that couldn't be discussed previously under the reign of Saddam Hussein?

ARRAF: Well, just looking at this week what's new this week is that we had this terrible bombing on the holiest Shia day in the holy city of Najaf, sorry of Karbala and here in Baghdad, 170 people killed and that has raised religious feelings and feeling too among Shias that they really need to ensure their future.

Now apparently some of the members of the governing council, some of the Shia members have spoken to a very influential Shia cleric here the Ayatollah al-Sistani who indicated he wasn't very pleased with this. So, they have gone back to talk about whether they can indeed change this.

As for what's new over the long term from last year, pretty well everything. The fact that we have all of these members Kurdish, Shia, Sunni every other religious group practically sitting in a room and being able to debate this is new, so much of this is new.

It's a new country. It's going to stumble a little bit on that road to democracy and that's perhaps what we're seeing now but they say they're going to keep on track -- Kyra.

PHILLIPS: No doubt. You will too following it for us. Jane Arraf thanks so much.

Other news across America now, Homeland Security Chief Tom Ridge admits the number of air marshals protecting commercial flights has been declining and more job cuts are pending. Ridge says that law enforcement agents, including those from the Secret Service, will be authorized to serve as air marshals when they fly.

Well this boat went up in flames in a Miami dock and firefighters sprayed it down but the boat began to drift away. Well, a lone fireman jumped to the rescue single handedly pulling the blazing boat back to shore.

And a school teacher is in big trouble for showing parts of Mel Gibson's "The Passion of the Christ" to at least 16 students at Malcolm X Elementary School in Washington, D.C. Some parents say their children were so traumatized by the R-rated violence they needed counseling. Others say their kids see a lot worse in real life every day.

Attorney General John Ashcroft remains in intensive care. He's undergoing treatment for an extremely painful condition called gallstone pancreatitis. Ashcroft was taken to George Washington University Hospital last night after falling ill with what he thought was the stomach flu.

CNN Medical Correspondent Dr. Sanjay Gupta explains exactly what the attorney general has and what can be done about it.

(BEGIN VIDEOTAPE)

DR. SANJAY GUPTA, CNN MEDICAL CORRESPONDENT: Well, the attorney general has been in the hospital since yesterday now, almost 24 hours in the ICU most likely receiving antibiotics, fluids and pain medications. Talking about gallstone pancreatitis everyone has heard of gallstones. Those are fairly common. About 20 million American adults do suffer from those. It's much more rare though to develop gallstone disease, about five percent. You can see the numbers and even rarer then to develop gallstone pancreatitis about less than one percent of the time.

This is one of the more painful things when it comes to general surgical type things. Take a look at the list of the symptoms there, certainly abdominal pain. That's an obvious one but also back pain. (UNINTELLIGIBLE) the pancreas is also -- goes into the back.

Patients can also develop nausea, fever and certainly those elevated enzymes that are the culprit. Those elevated enzymes can cause all sorts of problems. That is what is cooling down when doctors say the attorney general's pancreas is cooling down.

Take a look at this diagram now this diagram giving a better sense of just exactly what's happening in green. The gallbladder stones coming out of the gallbladder going down these little ducts. Sometimes those ducts can get plugged up by the gallstones. That's called gallstone disease.

If the gallstones move a little further down and block the pancreas as well that's when you get into gallstone pancreatitis. Sometimes an operation is needed. Sometimes that operation is to remove the gallbladder.

Sometimes it's just a procedure to put in stents to get rid of those little stones. Time will tell as to what procedure the attorney general needs. It will probably take some time -- take place sometime next week.

Dr. Sanjay Gupta, CNN reporting.

(END VIDEOTAPE)

PHILLIPS: Straight ahead inside the so-called "Memogate" scandal what to do about the unauthorized (AUDIO GAP).

And family reunion, a mother and daughter meet for the first time since the girl was declared dead six years ago.

And an Iraqi girl's determination to get back what the war took away from her. You'll be amazed by her poise and her courage.

(COMMERCIAL BREAK)

PHILLIPS: Jurors in the Martha Stewart trial are still deliberating. It's the third day over whether Martha Stewart and her broker Peter Bacanovic lied about her sale of ImClone stock shortly before it tanked.

The trial has taken its toll on Stewart's own company Martha Stewart Living Omni Media. So, can Stewart's empire built on homemaking advice, recipes and decorating tips be saved? With us to talk more about it communication strategist Robby Vorhaus, he's founder and president of the public relations firm Vorhaus Communications, Robbie, good to see you.

ROBERT VORHAUS, COMMUNICATIONS STRATEGIST: Hi, Kyra nice to see you.

PHILLIPS: All right. So the question is can she make bread rise again? That's your question I guess.

VORHAUS: Absolutely. You know what happened in this trial is, is that we saw that our favorite domestic diva, Martha Stewart, was not the same in her personal life as she is in her public life and all she needs to do is to get back and to make her bread rise again is to simply say, you know, I'm sorry.

I'm sorry that this happened. I'm sorry that so many people were distracted. Let's go back into the bedroom and make those wonderful curtains. Let's make our bed with 100 percent cotton sheets. Let's bake great cupcakes and all will be well.

PHILLIPS: But as time has sort of rolled on here and we've seen, learned a lot I guess about Martha Stewart...

VORHAUS: Right.

PHILLIPS: She's not necessarily the I'm sorry maybe humble type. A lot of people think she's a bully Robby.

VORHAUS: Well, that's true and I think that anyone who has known Martha Stewart, has spent any time with Martha Stewart, who has written about Martha Stewart will tell you that the bully, you're using the right B word but not necessarily the right word.

But, but she has the opportunity like all of us as human beings to resurrect ourselves to say, you know what I've learned a lot here and, you know what I'm sorry. Now, if she doesn't do that, if she continues down this path and says I'm a victim. I was wronged.

It doesn't matter if she's acquitted or convicted the women of America are going to say, you know what, I can't get behind her because my husband doesn't want me to act that way. My kids don't want me to act that way and the brand will falter. However, on the other hand, if she says, you know what, I'm sorry. We've been distracted by this. Let's go out and pick some roses it's OK.

PHILLIPS: How badly do you think her brand has been damaged?

VORHAUS: Oh, it's been damaged dramatically. I mean here is a woman who has built a domestic diva status, who has built an entire brand on goodness but now that she's gotten so big and we see that the personal and the professional don't match people are waiting to see what is she going to do? Does she get it? So, if she gets it and she is humbled and demonstrates that she'll be fine. If not we're going to see the end of Martha Stewart as a brand.

PHILLIPS: What do you think she -- do you think what she did is worth jail time?

VORHAUS: No, I don't and you know I think that what happened with WorldCom and with Enron where thousands, possibly millions of people lost their life savings and their retirement, those people I believe are criminal and deserve to go to prison.

If Martha Stewart is convicted she was selfish and greedy and I think that a fine and -- that's my own personal opinion. I don't think that what she did is something that should land her in jail.

But there, you know, there are the laws of the land and she broke them and she was living a very good life and, you know, as much as -- as rich people who are in the public eye who try to have demonstrated, as we saw in the '80s and '90s that they don't live by the same rules that we do it's not true. They do and they fall and then they go to jail.

PHILLIPS: Do you see scapegoat here?

VORHAUS: You know I do. I think that here is a very powerful woman who played by different rules and I think that there are a lot of people who said, you know what we caught her in something and let's -- let's, you know, take her down.

Do I think that this is a conspiracy, no, and do I think that she brought it on herself, I do, but I also think that a lot of people resent the fact that this woman who came from, you know really nothing and she did so much, Kyra, this woman has done so much to help the American public raise their style, raise their substance.

And if she could just smile, if she could just say -- we all wish that she could. It's her own little secret. We want Martha Stewart to say I'm sorry. Let's go back and bake some bread.

PHILLIPS: Interesting. Well, we're going to ask you to stand by.

VORHAUS: I'd love to.

PHILLIPS: You never know what could happen. There could be a verdict, so will you hold tight in the bureau there with us, Robby?

VORHAUS: I'm happy to, Kyra.

PHILLIPS: All right.

VORHAUS: Delighted.

PHILLIPS: Robby Vorhaus thanks so much.

Well straight ahead from the dream to the scream what went on behind the scenes in the Howard Dean campaign? We'll take you inside the Internet-driven dash for the White House.

DARBY MULLANY, CNN CORRESPONDENT: I'm Darby Mullany in New York. Keeping tabs on jobs and tax dollars, lawmakers move to stem the flow to international shores. We'll have details when LIVE FROM continues after this break.

(COMMERCIAL BREAK)

PHILLIPS: Well during an election year you usually only get to see and hear what the candidates want you to and Sunday night CNN brings you a lot more from inside a presidential campaign. Here's a brief behind-the-scenes look at the Dean bid.

(BEGIN VIDEOTAPE)

UNIDENTIFIED MALE: Are you ready Georgia boy?

UNIDENTIFIED MALE: I'm ready Utah boy.

UNIDENTIFIED MALE: So you want to know what we're doing at two o'clock in the morning? Constant (UNINTELLIGIBLE) creativity for Dean for America.

E. J. DIONNE, "WASHINGTON POST" COLUMNIST: Lots of people have spun all sorts of theories about the Internet none of which usually panned out and here suddenly you had a candidate who would use this new tool. You know there's no other way to put it. He used it brilliantly.

HOWARD DEAN (D), FORMER PRESIDENTIAL CANDIDATE: You're screaming live from here.

DIONNE: And then you had Joe Trippi who even before he went to Dean believed you could do this differently and you could use the new technology in a different way.

UNIDENTIFIED MALE: OK, where am I blogging?

UNIDENTIFIED MALE: There's only one medium in the world that would allow two million Americans to give $100 to us in one day if they wanted to do it. It's the Internet.

UNIDENTIFIED MALE: It would help if I had a computer that was hooked up to something.

UNIDENTIFIED MALE: Each time we had set a goal that seemed impossible yet somehow you made sure we reached it.

UNIDENIFIED MALE: We grow President Clinton's record raising the most money and we didn't do it with $2,000 contributions.

UNIDENTIFIED MALE: What is it 1358?

UNIDENTIFIED MALE: I know that it sometimes may seem at the end of the quarter that the campaign is too focused on money but how we raise our money is a very important part of the message of Governor Dean's campaign.

UNIDENTIFIED FEMALE: And I think Kerry will fight hard and come back and make up a little bit of lost ground but...

UNIDENTIFIED MALE: Have you heard anything about his money?

UNIDENTIFIED FEMALE: No, I've heard -- I mean I think they're going to -- it's been so tight that I can't help but think that they're going to come out with something more than five.

UNIDENTIFIED MALE: What's your old girlfriend in the Kerry campaign say? Call her up?

UNIDENTIFIED MALE: She won't.

UNIDENTIFIED MALE: Call her up. Tell her you'll marry her.

UNIDENTIFIED MALE: We're going to be in trouble.

PAUL BLANK, POLITICAL DIRECTOR: (UNINTELLIGIBLE) you guys going to break seven, because that's the word on the street. (UNINTELLIGIBLE) in order to tell me. You will take me up on that?

(END VIDEOTAPE)

PHILLIPS: Well, mark your calendar "CNN PRESENTS: TRUE BELIEVERS, LIFE INSIDE THE DEAN CAMPAIGN." It airs Sunday, 8:00 p.m. Eastern, 5:00 Pacific.

Well the nation's job growth is putting pressure on lawmakers to keep jobs tied to federal contracts here at home. Darby Mullany live from the New York Stock Exchange with more on that -- Darby.

DARBY MULLANY, CNN FINANCIAL NEWS CORRESPONDENT: Hi, Kyra.

Well as you know, this whole issue of outsourcing jobs overseas has been in the news quite a lot and now the Senate has voted to block federal contractors from using tax dollars to send work abroad.

The ban makes exceptions for select defense, homeland security and intelligence contracts but critics claim the move may eventually backfire by harming relations with other countries.

Separately, government auditors say that 59 of the 100 biggest publicly traded federal contractors have set up divisions in an international tax haven and many of those contractors have dozens of them.

Offshore tax havens enable companies to ship their income and lower their taxes in some cases, Kyra, by millions of dollars.

PHILLIPS: All right, how are those numbers doing today?

MULLANY: Well we've got stocks in pretty much a holding pattern, holding up pretty well considering the news investors got today on the jobs front. There was a very disappointing jobs report for the month of February and also chip maker Intel is taking a toll on tech stocks. Intel trimmed its sales outlook blaming inventory overflows in Asia. Intel shares are sliding nearly two percent. Overall, though, shares are hovering right around break even. Right now the Dow Jones Industrial Average is up almost 23 points. The NASDAQ is lower just slightly. That is the latest from Wall Street.

Later this hour tough talk for shock jocks, federal regulators are cracking down. CNN's LIVE FROM rolls on after this break.

(COMMERCIAL BREAK)

PHILLIPS: Welcome back to the CNN Center in Atlanta. This is LIVE FROM. I'm Kyra Phillips. Here's what's all new this half hour.

A reminder we're watching the New York courtroom where a jury is deliberating the fate of Martha Stewart. Also ahead, the U.S. Army comes to the aid of an Iraqi girl wounded in the war. She will amaze you.

What will happen to Martha Stewart? Everybody wants to know. Everybody is watching. So is our Mary Snow. She's outside the courthouse of the Martha Stewart trial. What are you hearing Mary?

SNOW: Well, Kyra, certainly a sense of anticipation. I'm not sure if you can see that much behind me but there is certainly a crowd waiting outside the courtroom, so many reporters here on standby waiting for word from the jury. This is day three of deliberations.

Jurors to come back from their lunch hour at 2:00 p.m. and the jury was really being very thorough in the past couple of days in terms of their requests for documents and evidence and hear some of the testimony.

The last note came in late yesterday. The judge made a ruling on that today, and it was about Count VI. So that certainly fueled a lot of speculation if they were going in order, the jurors that is, were they getting closer to coming to a decision about Counts VII and VIII?

So a lot of speculation about how quickly the jury was moving. This is a jury made up of eight women, four men. There are four charges filed against Martha Stewart that this jury is deliberating, five charges against Peter Bacanovic.

Certainly a lot of anticipation outside federal court here in Manhattan as a lot of curious onlookers waiting outside waiting to see if there's word about the fate of Martha Stewart -- Kyra.

PHILLIPS: We noticed the onlookers there behind you, Mary. Actually even a couple coming down the steps look like they just got married. So a lot of action going on at the courtroom.

SNOW: As there has been through the whole trial.

PHILLIPS: You've been inside the courtroom. First of all, give me your impressions of the jury. You've talked a lot about how a number of people coming forward, even the judge saying this is a very intelligent jury. Is this a jury ready to make a decision, and just get this over with and move on? Do you get that feeling?

SNOW: You know, Kyra, they were very attentive. And I noticed a number of jurors took notes throughout this trial, and it's been several weeks. Dozens of documents of evidence. The government alone presented 21 witnesses so a lot to pay attention to. But they seemed very attentive.

And the judge also indicated that once a verdict does come in she is going to instruct jurors who want to talk to us, the media, they will be made available to us if they want to speak, and we can get a sense of what caused them to make their decision.

And certainly one big factor that everyone was looking at, a big question about whether or not Martha Stewart would testify. We now know she did not. In his closing arguments, Robert Morvillo said if you have been disappointed, you probably wanted to hear from Martha Stewart but don't take that into consideration when you're making this decision.

And that was something certainly that he wanted to address to these jurors. Certainly it was a big question whether or not she would take the stand.

PHILLIPS: A number of notable stars coming out to support Martha Stewart throughout this whole process, Mary. Have you noticed any more faces? Does she still sort of receive that kind of famous support?

SNOW: Not in the last couple of days, Kyra. But earlier on in the week, we did see Brian Dennehy come to the courtroom one day. He said that he had worked with her as a stockbroker early on. Of course, Bill Cosby certainly caused a stir when he showed up. He had been a friend of hers. Rosie O'Donnell who was on trial a couple of months ago as well showed up in this courtroom. Barbara Walters showing up one day, as well.

So certainly a number of people have come in to be in -- sit in this courtroom. And the stars, Bill Cosby, Rosie O'Donnell sitting right behind Martha Stewart. And that is one question is whether or not any of that star power would have ever had an effect on these jurors because clearly, it was very visible they were there to support her.

PHILLIPS: We're watching and waiting with you, as soon as you get word, I know you'll let us know. We'll come back to you live outside the courthouse waiting, of course, for a verdict in the Martha Stewart trial. Thanks, Mary.

SNOW: Sure.

PHILLIPS: Well, a signing set back. Iraqi leaders have yet to put pen to paper on an interim constitution. Shi'ites raised last minute concerns over one particular clause dealing with who can veto a provision the Shi'ites see as benefiting the Kurds.

Soldiers aren't the only ones who bear the scars of war. Among the casualties, a 13-year-old girl paralyzed. Elaine Quijano has her story.

(BEGIN VIDEOTAPE)

ELAINE QUIJANO, CNN CORRESPONDENT (voice-over): In some ways, she's no different than others her age. But at 13, Ma'rwa is carrying memories and grief few adults could bear. Last November an errant U.S. mortar shell smashed into her family's farm house north of Baghdad. Five family members died and Ma'rwa was paralyzed from the waist down.

MAJ. MARY ADAMS-CHALLENGER, 21ST COMBAT SUPPORT HOSPITAL: I know we can't help everybody, but I figured if we could just start with this one young girl.

QUIJANO: Physical therapist Major Mary Adams-Challenger met and treated Ma'rwa in Iraq, as did pediatrician Major Sharnell Hoffer.

MAJ. SHARNELLE HOFFER, ARMY NATIONAL GUARD: I wanted to explore different avenues to help her.

QUIJANO: Those avenues proved a complex maze of bureaucracy. But with the help groups like The National Spinal Cord Injury Association, three months later the majors found themselves waiting for Ma'rwa...

ADAMS-CHALLENGER: She's here!

QUIJANO: ... on the tarmac at Andrews Air Force Base in Maryland. They weren't supposed to, but they rushed into the plane's belly to greet her.

ADAMS-CHALLENGER: Hi, baby. It's so good to see you. Thank you.

QUIJANO: Ma'rwa's 15-hour trip to the U.S. marked only the beginning of her journey. Days later at the National Rehabilitation Hospital in Washington...

MA'RWA AHTEEMI, PARALYZED IN IRAQ WAR: Ow.

QUIJANO: ... Ma'rwa told of her need to return to her family and her old life.

AHTEEMI (through translator): I have no option. I have no get my treatment. I have to be able to walk again and then go back home.

QUIJANO: (on camera): Although Ma'rwa does have some feeling in her upper legs, doctors here say it's too early to tell whether she'll ever walk again.

(voice-over): Those who helped bring her here say Ma'rwa isn't alone, and say more needs to be done for other disabled Iraqis.

MARCIE ROTH, NATL. SPINAL CORD INJURY ASSN.: The liberation of those people, their freedom, their independence, must include people with disabilities. QUIJANO: Even for Ma'rwa, there are no guarantees.

AHTEEMI (through translator): My father, he is crying until I am back home there.

QUIJANO: Only the certainty her and her family's lives will never be the same.

Elaine Quijano, CNN, Washington.

(END VIDEOTAPE)

PHILLIPS: Well, six years ago, Luz Cuevas was told that her 10-month-old (sic) baby girl had died in a house fire. But the baby was very much alive, allegedly kidnapped by an acquaintance. The woman now charged with setting that fire.

Last month Cuevas saw six-year-old Delimar at a party and knew by the dimple on her face it was her baby. A DNA test proved it. And yesterday the two met for the first time since their separation. Cuevas's attorney described the emotional meeting on CNN's "AMERICAN MORNING."

(BEGIN VIDEOTAPE)

ANTHONY CIANFRANI, ATTORNEY FOR LUZ CUEVAS: My client told me that she called her mommy and was very excited and happy about seeing her and anxious to see her new siblings.

BILL HEMMER, CNN ANCHOR: How did Ms. Cuevas react?

CIANFRANI: She was thrilled. She was gushing over.

HEMMER: We are told that there's a bit of a communication barrier. The girl does not speak Spanish, the mother does; speaks a little bit of English.

How were they able to overcome that, if at all?

CIANFRANI: The mother speaks enough English to communicate to the child. The mother can talk about foods and colors and how do you feel and that sort of thing. So the mother can communicate, but she understands that she needs to learn English so she can communicate better with her child.

HEMMER: It is also told us here at CNN Ms. Cuevas says that her daughter, Delimar, was hysterical when she found out the mother who she thought was her mom turned out not to be that way.

What sort of complications do you foresee in this relationship?

CIANFRANI: Well, we are working with psychologists to make the transition go as best as it can. It will be a fast transition. Over the next few days, my client will take custody. We do expect some problems, but the natural mom has a loving home and other children and she's just committed to doing whatever is necessary to make the transition go well.

HEMMER: And the natural father has come forward, also. He is now saying that he wants to be included in this process. He's hired an attorney.

What can he expect in terms of involvement in this little girl's life?

CIANFRANI: He will have access, but fairly limited for the near future. There's been enough turmoil in the child's life. She does not need some sort of split custody situation where she's with the natural mom some time and with the natural father some time. So his role will be limited to visitation for the next few months at least.

HEMMER: There is at least one city council member in Philadelphia calling for an investigation into what came out of the investigation of the fire back in 1997. You've said that you are planning a lawsuit against the city.

What do you plan to file suit against in Philadelphia?

CIANFRANI: It would be a civil rights suit in federal court. The Philadelphia officials are all immune under state law. So the only way to get around those immunities is to pursue a civil rights action. And I think the focus is on just about every department. I mean the police department didn't follow up. The fire department bungled it. And the medical examiner did a poor job, also.

So it's hard to imagine a situation where the three responsible agencies didn't do their job, but it seems to have occurred in this situation.

(END VIDEOTAPE)

PHILLIPS: Carolyn Correa, a family acquaintance, has been charged with kidnapping the child and setting the fire to cover her tracks. She's being held on a $1 million bail.

Straight ahead, pictures that will break your heart. Life in Haiti through the eyes of its orphans.

And later, having a fine time on the radio? The FCC is thinking about imposing really big fines for DJs who step out of line.

(COMMERCIAL BREAK)

PHILLIPS: Well, as we continue to tell you the panel of eight women and four men still weighing in the evidence in the trial of Martha Stewart. We're going to go back to Mary Snow in New York. She's outside of the courtroom getting word possibly maybe a verdict -- Mary.

SNOW: That's right, Kyra. The Associated Press now reporting that a verdict has been reached. They are attributing a law enforcement source. The jury was supposed to -- suppose the to come back from lunch at 2:00. It is now 45 minutes after that. And we are told the courtroom doors are open. The judge is not in the courtroom. So we are waiting word from inside the courthouse from the judge, and we will of course, keep you posted. A team of reporters in there and ready to give us the verdict when it is reached.

This jury, as you mentioned, Kyra, eight women, four men deliberating the fate of Martha Stewart and her former stockbroker Peter Bacanovic. They are deciding on four charges against Stewart, five charges against Bacanovic.

There's one charge both share, and that is conspiracy. These charges directly linked to a suspicious trade on December 27, 2001. The government has accused both defendants of lying about the circumstances surrounding that stock trade.

This is a trial that has been going on since late January. Twenty-one government witnesses, defendant Bacanovic's team called five witnesses, but the attorney for Martha Stewart calling just one witness, saying that he really didn't feel that he had a case to answer. And also saying that because of this conspiracy charge, saying there were so many inconsistencies of statements made between Martha Stewart and her stockbroker, that if they had conspired, in his words, this would have been a confederacy of dunces, saying that if they really had conspired they would have been on the same page.

This has been so closely watched. And this followed the insider trading case of Sam Waksal who is now serving time in prison. Sam Waksal was a close friend of Martha Stewart. ImClone founder. This stock trade involves Martha Stewart's sale of nearly 4,000 shares of ImClone -- Kyra.

PHILLIPS: OK, Mary Snow outside the courtroom right there. I was also listening to our 911 there. Still reporting the AP -- holding it on the AP right now that a verdict has been reached in the Martha Stewart case. Mary, we're going to ask you to stand by outside the courtroom there.

I also want to bring in our legal analyst Kendall Coffey on the phone with us. Always talks about big trials like this with us. Kendall, if indeed a verdict has been reached, this happened pretty quickly.

KENDALL COFFEY, CNN LEGAL ANALYST: That's a pretty quick verdict, Kyra. Exactly. They began deliberating Wednesday afternoon. Yesterday, they started late because of some transportation issues. And if have a verdict now, that's not good news for the defendants.

Certainly based on everything we've heard and seen, Peter Bacanovic is in a lot of trouble. And the general sense of the jury questions and whatever tea leaves we could read about what the jury indicated they were doing was to be working right through the prosecution's evidence, basically following the prosecution's road map going count by count.

And if the result of all that is a fairly early verdict, it's very, very troubling for both defendants.

PHILLIPS: Yes, let's talk about that, not good news, if, indeed, , we confirm that there is a verdict. What does that say about the defense? What does that say about the prosecution? Why would this necessarily -- or why would this be not good news?

COFFEY: Well, in no small part, this sort of general rule thumb that unless somehow the prosecution just completely collapses in its case, and that surely didn't happen here, it is a general rule prompt verdicts are good for the government, not so good for the defense.

The other thing here, though, is just the way the jury was zeroing in on prosecution evidence, moving very relatively promptly through it. And that's also something that can't make a defendant feel good.

Certainly when we look at some of the indications where there have been very, very hard-fought outcomes, more often than not, it takes a while for the jury to say acquittal, especially given the way that Douglas Faneuil obviously came across well, the fact that most of the government witnesses pretty well proved what the government said they were going to prove.

So these are definitely moments of very high anxiety for Peter Bacanovic and Martha Stewart.

PHILLIPS: Kendall, I'm going to ask you to stand by for us, please. Go back to Mary Snow outside the courtroom. Looks like a little action starting to pick up out there -- Mary.

SNOW: Certainly the action is picking up outside here, Kyra. But the U.S. attorney's office actually not confirming a verdict. As we mentioned, AP, the Associated Press saying a verdict has been reached, quoting a law enforcement source.

However, the judge is not in the courtroom. So we are waiting for word from inside the courtroom about a possible verdict.

This is day three of deliberations. The last we heard from the jury in terms of notes was late yesterday. They had a question about the perjury charge involving Peter Bacanovic, Stewart's co-defendant. And the judge sent back a note to the jury, first order of business this morning, answering that question. The ruling was seen as not a good sign for Bacanovic.

But that note late yesterday was the last piece of information that the jury had requested, this jury of eight women, and four men. This has been a case that started in mid-January.

And as we've been saying, it's been a lot of evidence, numerous witnesses, nearly two dozen for the government. And, Kyra, going to throw it back to you. As soon as we get more word, we'll let you know.

PHILLIPS: Once again, Mary, you're saying the U.S. attorney is not confirming what the AP is saying that there is a verdict right now at this point?

SNOW: That is correct. Certainly though, Kyra, a lot of anticipation outside this courtroom. And there is an increased police presence outside the court.

So a lot of anticipation, and there are signs that there is some kind of activity that appears to be imminent, but we still have not heard it from the judge.

PHILLIPS: All right, Mary, we'll wait for your sign.

Meanwhile, we'll continue our conversation with legal analyst Kendall Coffey who joins us now by phone. Kendall, we were talking about if there is a verdict, that will not be good news for Martha Stewart's fate.

Let's talk about the charges that she faces. And talk about what could be in store for her. Do you think we will see Martha Stewart serving any jail time?

COFFEY: Well, I think if she's convicted of any of the counts, it's a virtual certainty she'll go to prison. This isn't a situation, Kyra, where there's a moral victory if you're only convicted out of one of four counts or if it's a tie, if there's two convictions and two acquittals.

Any single conviction will throw her into the sentencing guidelines which to some extent really tie a judge's hand. They prescribe a range that in all but very exceptional cases the judge is going to have to impose a sentence within that range. And there have been a lot of different looks at what the calculation would be. It's obviously too early to get anything really definitive. She may be acquitted of everything.

But assuming that there is a conviction on at least one of the four counts, the bottom end of that range is likely going to be about ten months, and it could go up higher, maybe a lot higher, 20 months or more. And there's yet another wildcard in all of the sentencing dynamics, which is very controversial at times, Kyra.

But if the relevant conduct -- and those words mean a lot of frightening things for defendants in this scenario. If all the relevant conduct is brought in in a sentencing, that might be, according to the government, all of the securities fraud stuff, which involves tens of millions of dollars.

You'll recall that the government's case on securities fraud was found to not be sufficient for purposes of a guilty conviction. But under the sentencing guidelines, that same security fraud stuff, again, potentially with tens of millions of dollars involved could be brought into the sentencing equation as relevant conduct. And if that happened, the sentence could be a number of years.

So a lot of variables. Far too early to tell. I think most folks think that this judge would sentence Martha Stewart in the low end of whatever the guidelines would be. But we're not talking probation. We're not talking house arrest. We're talking federal prison if she's convicted.

PHILLIPS: Interesting. The wildcard adds a whole other talking point there. Kendall, hold on there with us. Whether acquitted or whether she's found guilty, what does this mean for her reputation, her brand?

Let's bring Robbie Vorhaus back in, our communication strategist. Talk about both sides of the fence here, Robbie. If indeed she is found guilty, how do you restore your image, your brand, your reputation, your company?

VORHAUS: Well, you look good in stripes first and you make sure that you always have fresh flowers.

No, seriously, I think what she needs to do is she needs to demonstrate some form of remorse some form of humility. Some form of apology. If she doesn't, she cannot rebuild her brand because then she can't get people behind her.

I mean, Kyra, talk about reality TV, I mean, we want to root for the underdog and so many people do love Martha Stewart. I mean, for as many people as we hear who say, oh, I don't care, I'm not following it, she's this or she's that, I've talked to a lot of people who love this woman. Who wish that Martha Stewart were their mom. Who wish that Martha Stewart were their wife.

And all they want is for Martha Stewart to get back in the kitchen with the big smile and to say what, you know what, I've learned a lot and now I'm back with you again, and thank you for your support. And my, isn't this the loveliest apple pie you've ever seen?

An you know, there's a lot of attention right now, but our attention span is short. And if she would do that, she could be out of prison, if she's convicted. If she's acquitted it's another story.

PHILLIPS: Why it another story if acquitted because it seems like it would be easier if acquitted to come forward and say I'm sorry for all of this and everything that happened. See, I was acquitted, let's get rolling again.

I would think it would be easier to do it that way versus if found guilty and in jail, how do you work on your company?

VORHAUS: Well, you're right. Her company is going to continue on. If she's in prison, I hate to make it sound like a mob story, but she's going to be able to influence her company while still in prison.

However, it is all up to her. I mean, this is called Martha Stewart. This is not called some woman from New Jersey. And if she demonstrates that she is humbled, her talent hasn't gone away, her fans haven't gone away, her ability to build a great brand hadn't gone away, all that's gone away is, is her credibility in the way that she acts personally.

So if she's acquitted, it's, again, we're right at the point of looking at how she acts, how she behaves. And she can't act her way through this.

People have asked me, well, she can act her way through this. Listen, so many women are going to be watching her privately, we'll on Page Six or any of the other columns gossip if she yells at a waiter, it's all over. No, she's got to walk a very straight and narrow line here, if she so chooses.

PHILLIPS: From communication strategies back to legal strategies. Robbie, stay with us, please.

Kendall Coffey, let's talk about the different strategies that took place with the attorneys representing Martha, attorneys representing Peter Bacanovic.

COFFEY: The strategies when you lose are always going to get second-guessed. There are two things pretty striking about the process, and that is the way both of the defendants stayed together, teamed together.

Bacanovic was almost assuredly offered something like house arrest and a felony. I would guess something less than a significant jail time to cooperate against Martha Stewart. He didn't. And he stood by her, stood by the story. No doubt he's got some regrets about that right now thinking he may be facing federal prison time.

By the same token, in Martha Stewart's closing argument, her lawyer did not do what I think some lawyers might have done, and that's throw Bacanovic overboard. Say look, the reason we know Martha Stewart isn't a real criminal is let's compare the allegations against her with Bacanovic.

And every comparison would have been positive for Stewart, negative for Bacanovic ranging from the fact that of course Martha Stewart, according to testimony, did not tell people a lie. Martha Stewart did not take an oath and have an actual transcript of her alleged false statement which obviously makes the case stronger, especially when they can charge perjury against Bacanovic and Martha Stewart.

So one of the questions is going to be (UNINTELLIGIBLE) they stayed true friends, was that the right defense strategy for either of them? The other big question is should one or both of them have taken the stand in order to refute the allegations made against them. At the end of all this most of the government's case, which had some very damaging moments, was essentially unrebutted and uncontradicted by the defense.

PHILLIPS: Kendall Coffey, stand by. Robbie Vorhaus, a communication strategist also with us and Mary Snow outside the courtroom waiting to hear if indeed, what the AP is reporting, that a verdict has been reached in the Martha Stewart case.

Our live coverage will continue right after a quick break.

(COMMERCIAL BREAK) PHILLIPS: If you're just tuning in, this just in to CNN. The AP reporting that there is a verdict in the Martha Stewart trial. Our Mary Snow standing by outside the courthouse where things are definitely picking up with police presence and a number of people lining up on the sidewalk there.

Mary, why don't you update us on where we stand right now?

MARY SNOW, CNN CORRESPONDENT: OK, Kyra.

U.S. Marshals coming out of the courtroom now. And the courtroom doors were closed. The jury was supposed to come back from lunch at 2:00. And, certainly, we did see this police presence being increased outside here at the federal courthouse in Manhattan. And, just moments ago, the door closed to the jury -- to the courtroom, that is, indicating that potentially the word that we're waiting for is imminent.

The Associated Press had been reporting that a verdict had been reached. This comes on day three of deliberations, a jury of eight women, four men given the case on Wednesday after being instructed. The last note that they gave to the judge came late yesterday, and that was on count six. There are eight counts in this whole case. So there was a lot of speculation that perhaps the jury had been moving along, and we are awaiting word from inside the courtroom.

Just while we are doing that, let's take a look back at this case that has been so closely watched.

(BEGIN VIDEOTAPE)

SNOW (voice-over): The government's case centered on the charge that Martha Stewart and her stockbroker, Peter Bacanovic, lied about her sale of nearly 4,000 shares of ImClone stock on December 27, 2001. Prosecutors say Stewart and Bacanovic fabricated a story about having an agreement to sell the stock if it fell to $60 a share.

The government relied heavily on their star witness.

(END VIDEOTAPE)

SNOW: OK, Kyra we are just hearing word of a verdict. Count one is guilty, count three, guilty. These are charges against Martha Stewart. Count one was conspiracy, count three making false statements. This had to do with an SEC investigation.

Count four -- all counts against Martha Stewart guilty. These are four counts, each of these counts having a maximum penalty of five years in prison, $250,000 fine. We're now awaiting word for the verdict against her stockbroker, Peter Bacanovic.

Bacanovic, guilty of conspiracy, Bacanovic, guilty of count two, making false statements. Count five is not guilty. That was the charge of making and using false statements. Count six, perjury is guilty. That was the question that the jury had been asking about. And obstruction of justice, we're still waiting for count seven against Bacanovic.

So, Martha Stewart found guilty on all four of these charges. And there had been signs that, because of the jury's questioning, the notes that they were giving to the judge, that they were really going through this evidence and perhaps this was a good sign for the government in making their case.

Count one was conspiracy. This was the charge that she and Bacanovic -- it's the only charge that they had been charged with together. The false statements charge against Martha Stewart was making false statements during an investigation with the SEC in February of 2002, shortly after her sale of ImClone stock.

All three specifications of that first conspiracy charge, she was found guilty. And those specifications include obstruction of an agency proceeding. That was the SEC investigation, making false statements and perjury.

In terms of the false statements, count three and count four, they had to do with SEC interviews that were done. And count eight, obstruction of justice, her attorney had made the case that she didn't even know that there was an SEC proceeding against her when she was being interviewed about this ImClone stock.

Peter Bacanovic -- we're just getting word. The false statements charge against Martha Stewart, there had been seven statements that she was charged with making false statements. We are finding that the jury in this case found that one, only one was found that she did not make a false statement. So, that was six statements that the jury found to be guilty.

And we are getting word, too, of Peter Bacanovic, obstruction of justice. That's the only charge, obstruction of charge, guilty, as had been with Martha Stewart, and that was the SEC proceeding. Certainly, so much activity outside of this courtroom, as you can probably see behind me, as crowds came running out.

This case, really, the main witness in this case had been Doug Faneuil, the government's star witness. He had been the assistant to Martha Stewart's stockbroker. And, really, what the prosecution had said to the jurors in the closing argument, saying, if you believe the testimony of Doug Faneuil, then this case is really over.

And that really rested on his testimony over four days. He pled guilty to a misdemeanor. The defense tried to say that his credibility was in question and that he was really just testifying for a more lenient sentence from the government -- Kyra, back to you.

PHILLIPS: Wow, a lot going on, Mary. Great job. I saw that you were getting word there as everything was sort of unfolding live on the air. I'm going to let you gather your thoughts, get everything with more specifics there.

We're going to bring Kendall Coffey back in now. We've got him up live in Miami. Kendall, you're getting the word. Let's try and lay this out in layman's terms here. Let's start with Martha Stewart, guilty on all four counts. Let's talk about each one of those counts and what this means now for the domestic diva.

KENDALL COFFEY, ATTORNEY: Well, conspiracy, two counts, false statement, obstruction of justice. It means she's not going to be in a significant role again in a publicly traded company.

It means that, unless this is somehow undone on appeal, she's a felon and she's going to prison. There's going to be a whole separate process in terms of what that sentence might be, but it's not going to be probation. It's not even likely to be a club fed kind of thing. She's actually going to be going to a real prison, like a real criminal.

PHILLIPS: Now I'm being told that trading has been halted on Martha's stock.

Tell me, as this does come down -- you even just made a comment, Kendall, about her company. What does this mean now just for everything that has her name, her brand, her reputation, her company stock now being -- or trading halted now on Wall Street.

COFFEY: Well, it's going to be devastating, because her company is so identified -- that is a company that is really she, herself, and Martha Stewart. And with her no longer able and even in a future capacity to become a CEO, with her reputation absolutely in tatters and shattered right now, that company is obviously facing an extraordinary, extraordinary challenge.

Meanwhile, for Martha Stewart and Peter Bacanovic, this has got to be a shocking, devastating moment beyond anyone's worst nightmare. And it's gradually sinking in on both of them that everything they've done in their lives is being turned upside down and that they will be, at some point, led into a jail and put behind bars, unless there is the highly unusual result of a reversal on appeal.

They still have appellate rights, of course. But, Kyra, the percentage chances of getting a case, especially this one, where the judge was very careful, thrown out by an appeals court is not good at all.

PHILLIPS: Now, looking as we see each count come up one by one that she has been found guilty of, we're talking about five years, maximum penalty five years prison, $250,000 fine.

Realistically, though, Kendall, how do you think it's going to play out? Do you think -- how long -- well, do you think she will spend time in jail, for how long, realistically, and the fines?

COFFEY: She's going to take -- definitely spend time in jail, Kyra. It's not going to be five, five, five. You don't simply add up the four five-year sentences, because what they do now is an analysis of the conduct. And there's actually a point system, where something prepared called a pre-sentence investigation report prepared by an arm of the court will actually do a numerical calculation. And that number of points will take the judge to a recommended zone of months. At the very low end, what she's facing could be 10 months to maybe 16 months.

But there are a lot of ways where that range could be calculated much higher, perhaps a year and a half to two years. And we talked about a little earlier, Kyra, something called relevant conduct. It's the big and terrifying wild card in all these sentencing controversies from the standpoint of a defendant, because it means even conduct that a defendant was acquitted of -- in this case, the judge threw out the securities fraud -- that conduct can still be brought in, in sentencing if the government wants to really hammer Martha Stewart and put her away for a number of years.

PHILLIPS: All right, so now the wild card does come into play.

COFFEY: It can be considered. We don't know what the government's position is going to be on that.

They may take the view that, look, they have hammered her enough, that they have proven their point beyond anyone's expectation. This is a resounding triumph for the Department of Justice, the first really high-profile case in any of these corporate corruption scandals, not an easy or surefire case for the government. And they couldn't have won it more impressively, all four counts sustained against Martha Stewart, other than the very controversial novel securities fraud count.

By any measure, this is a huge day for the Department of Justice and for the federal prosecutors that so relentlessly and effectively pursued Martha Stewart and Peter Bacanovic.

PHILLIPS: I want to talk to you more about that, how this is pretty historic for the Department of Justice, what type of domino effect we could see within corporate corruption and talk more about jail time, too. Hold on, Kendall.

Let's get back to Mary Snow out in front of the courthouse.

Mary, what's -- it's gotten -- well, no, it hasn't calmed down at all, actually, behind you. Things are still pretty crazy.

SNOW: Yes, it is, Kyra, things not calming down at all, in fact, more crowds coming to gather, waiting to see Martha Stewart as she leaves this courtroom and certainly her attorneys, Peter Bacanovic, his attorneys.

And, also, we're waiting to hear from some of the jurors to see what it was that convinced them to convict Martha Stewart on all counts against her. There were four counts. We'll just briefly go through them again, conspiracy, making false statements -- there were two counts of false statements -- and obstruction of justice. Peter Bacanovic, there were five counts against him. One, he was found not guilty. That was producing a false document. That was the document that he said he had that proved that he had an agreement with Martha Stewart to sell this ImClone stock. And, Kyra, on the making of false statements, there were seven specifications, for example, on one of the charges against Martha Stewart, the jury finding six of them to be guilty on the specifications. And this was statements that she had made to investigators in an SEC investigation about her sale of ImClone stock.

This happened in the winter of 2002, shortly after her sale of that stock on December 27. And on the false statements against her, as I said, there were two charges. Most of these statements that she was alleged to have made false statements, she was found to be guilty.

Martha Stewart had been accompanied each day of this trial by her daughter, Alexis, along with her team of lawyers, one of them even being her son-in-law on her team. And we're waiting to hear from that jury makeup. It is eight women, four men, the defense so confident in their case that her lead attorney presented just one witness, saying that he really didn't feel that he had a case to answer, that he felt that this was a case based on circumstantial evidence.

But, certainly, there was some very damaging testimony in the government's case -- Kyra.

PHILLIPS: All right, if you're just tuning in, Martha Stewart guilty on all four counts, our Mary Snow bringing us all the breaking information outside the courthouse.

Also with us, legal analyst Kendall Coffey.

Kendall, you were mentioning that this is quite a historic day for the Department of Justice. I'm just wondering, is this a pretty historic day for corporate corruption cases? What does this mean? What kind of message does this send out to stockbrokers, to company CEOs? Will it make an effect, do you think, as we move forward when it comes down to how corporations operate?

COFFEY: Well, I think, in the short term, it will.

We've seen other situations where there have been very impressive waves of prosecution that get everybody to behave better or at least more carefully for a while. It has to be pursued year after year, though, because, let's face it, 10 years from now, they're not going to be talking about the Martha Stewart case.

But the immediate impact is dramatic and an extremely positive thing for the Department of Justice. Let's consider other people who are in the position of a Peter Bacanovic, somebody that's being told, cooperate with us. You'll get less time. We're not going to give you a free pass. We're not going to give you a get-out-of-jail-free card. But you're going to do a lot less time if you cooperate with us. Take your chances and look what happened to Peter Bacanovic.

There's no doubt, Kyra, he had offers to cooperate against Martha Stewart. He decided to roll the dice. Now he's going to jail for years. On the other hand of it, with respect to a Martha Stewart, I think the message is going to be, don't think that you are smart enough and clever enough to get beyond the ability of federal investigators at this point. They did a number of sophisticated and relentless things. They also proved, in the final analysis, that, when they brace and when they interrogate even your best friends, they're going to get evidence and they're going to get to the truth.

Martha Stewart no doubt, based on this jury verdict, thought that she and Bacanovic would come up with a story. All their friends would stand by them. Douglas Faneuil would wave the flag everybody else was. But when the feds put the heat on, all of that crumbled. And I think that's something that everyone in corporate America's going to have to remember.

PHILLIPS: Kendall, stay with us. Thank you very much.

I'm just being told that, June 17, sentencing for both Martha Stewart and Peter Bacanovic.

Allan Chernoff, just coming out of the courtroom, joins us live now outside of the courthouse.

Wow. You were there. You saw it. Give us all the details, Allan.

ALLAN CHERNOFF, CNN CORRESPONDENT: Well, Kyra, Martha Stewart herself really did not appear to show any emotion, as well as her co- defendant, Peter Bacanovic.

In fact, the most emotion we saw I would say came from the lead prosecutor, Karen Seymour, who appeared to be holding back tears, apparently tears of joy for her great victory, because there's no way to describe this but a slam dunk for the government.

As you've been reporting, Martha Stewart guilty on all counts and Peter Bacanovic guilty on all of the counts, except for the false documents charge, so clearly a very dramatic win for the government here. The courtroom was packed; 2:00, everybody returned from the lunch break and there was a buzz in the courtroom that a verdict had been reached. But we all waited in there for a full hour. The U.S. attorney was there, David Kelley, a boss of the prosecutor here.

And that was a real indication that a verdict had been reached. But, again, we had to wait for a full hour. Finally, the judge came back in, said that, we have a verdict. The jury walked in one by one. The judge announced the verdict and then polled each member of the jury individually, and they all said, "Yes, Your Honor," when asked if that is your verdict, each individually.

And the judge then set a sentencing date of the 17th of June at 10:00 a.m. The defendants also will have to report Monday to the probation office here. And after that, the judge said, this matter is concluded. And she adjourned court. So that's exactly what happened in the courtroom only moments ago -- Kyra.

PHILLIPS: Martha's daughter, Alexis, Allan, by her side through all this. Did you, by chance, get a chance to see how she handled the news?

CHERNOFF: Also not a tremendous reaction, really could not see any great expression. As we've reported before, through virtually the entire trial, Martha Stewart inside has shown relatively little emotion, grim-faced. And she remained grim-faced as the jury was polled, as the judge made her announcement, and the same for her daughter, Alexis Stewart, who sat in the row, the first row of the observers, right behind Martha Stewart, sitting next to Greg Morvillo, the son of the lead defense attorney, Robert Morvillo.

So, that was pretty much the reaction in the courtroom. And, really, we can say that this was a relatively swift verdict, because, keep in mind, two defendants were being considered here. There were a lot of counts. And there were a variety of specifications for the false statement counts, and also for the perjury count confronting Mr. Bacanovic.

So, a lot for the jury to go through. They seem to have gone through it quite quickly and to have, really, as the judge said, done a thorough job. And the judge did compliment the jury this morning, saying they clearly appeared to be a very intelligent jury. The questions that they were posing to the judge really did seem to be right on target in terms of their analysis -- Kyra.

PHILLIPS: Allan, I don't know if you've got your running shoes on, but I'm just now getting word that both defendants, Martha Stewart and Peter Bacanovic, exited through a side door there at the courthouse. It would be interesting to see if anyone would be able to catch up with them, but we're being told both defendants leaving through a side door of the courthouse.

So let's hurry on over to Wall Street.

Darby Mullany, I was told earlier that trading was halted on Wall Street. What can you tell us about Martha's stock, Darby?

DARBY MULLANY, CNN CORRESPONDENT: That's right, Kyra.

Shares of Martha Stewart Living Omnimedia, the company founded by Martha Stewart, were halted right before the verdict was read. Shares had jumped nearly 20 percent before the verdict was read and before the halt. This is the highest level since June 2002. There was a very dramatic reaction among traders here.

A lot of people gathered in front of the post, waiting for the verdict to come down. As the headlines came down over the ticker, you could hear the traders going "oh, oh," as each one of the different counts Martha Stewart was announced to be found guilty on.

And, also, you could even hear some boos after the verdicts for Peter Bacanovic came over on the ticker. Keep in mind, this is the place that Martha Stewart took her company public back in 1999. She was down here at the New York Stock Exchange serving muffins and coffee. She was really the darling of Wall Street at that time. Her stock had a strong IPO. And, at a certain time, she was even named New York Stock Exchange board of director. She later gave up that position once these charges came clear.

So, really, a dramatic ending, and you might wonder why the stock was up so much today. Many analysts I've talked to say that, look, just the anticipation that this story will come to a conclusion is perhaps the best thing for Martha Stewart Living Omnimedia, the company, so it can put all this legal wrangling and drama behind it and move forward -- Kyra, back to you.

PHILLIPS: All right, Darby Mullany, live from the New York Stock Exchange there, thank you so much.

MULLANY: Sure.

PHILLIPS: We're going to take it back to outside the courthouse now, where the verdict has been read in the Martha Stewart trial.

Our Jeffrey Toobin was inside the courtroom, joins us now to talk about just how it all went down.

Jeffrey, your impressions?

JEFFREY TOOBIN, CNN SR. LEGAL ANALYST: This was a rout. I mean, this was just a total rout.

I mean, Martha Stewart seemed to have a defensible case going in, but the jury just wasn't buying at all, the prosecutors, you know, winning every count against her, three of the four counts against Peter Bacanovic. Martha Stewart is almost, almost certainly going to prison. It's just an extraordinary moment, because, you know, this was -- I mean, is, I think, one of the dozen best-known women in America, a woman who was a billionaire on paper a little more than two years ago, who is still worth several hundred million dollars. And she's going to be going to jail.

PHILLIPS: Strengths and weaknesses, Jeffrey. As you watched this all go down, what sticks out in your mind?

TOOBIN: I think mostly weaknesses.

This was such an avoidable problem for Martha Stewart. If she -- remember, she wasn't even charged with insider trading. If she had simply said nothing, if she had simply told the truth about what happened, about this single stock trade involving $250,000 worth of stock, if she had simply either told the truth or said nothing, none of these problems would happen.

The frustration, the anger, the incredible rage she must be feeling right now is just extraordinary.

PHILLIPS: You know, Kendall Coffey was saying this was a historic day for the Department of Justice. As an attorney, as a legal analyst, what do you make of the decisions that came down today, and do you agree with that?

TOOBIN: You know, I changed on this case. I was very skeptical going in. But I watched this whole trial. And Martha Stewart was convicted because she was guilty. And the evidence in this case, there was no single silver bullet, no smoking gun, but the accumulated evidence against her was simply extraordinary. No one who sat through that trial could be surprised by this verdict. The story that she told to investigators after she made the stock trade, it simply didn't add up.

She claimed that, you know -- just to recall what this case is really about, she sold 3,900 shares in a company called ImClone in December 27, 2001, and she claimed that she sold it because she had a preexisting agreement to sell the stock when it hit 60. Prosecutors said she sold it because she was tipped that the CEO of the company, Sam Waksal, was selling his shares. Obviously, she sold because she was tipped.

The $60 agreement was simply fiction. And that's what the jury found. And, as someone who sat through the trial, I agree with the jury.

PHILLIPS: Jeffrey Toobin, our legal analyst outside the courtroom there, thank you so much.

Want to take it back to New York now.

Robbie Vorhaus, communications strategist, boy, a lot of spinning to do now, Robbie.

ROBERT VORHAUS, COMMUNICATIONS STRATEGIST: Well, Kyra, truth is the ultimate spin.

And I think that this is a case where -- when Martha Stewart brought her company public, one of the biggest issues, one of the biggest risks that they were taking was, people were saying, what if you die? What is going to happen to the company? And they brought in all these actuaries about the length of time that she would live. And people said, you know, we can build this company over the next 20 years and have a company that endures.

Well, that all changed. And the big thing about this is, is our focus right now is on Martha Stewart. But what about "Martha Stewart" magazine and all the people who subscribe and all the people who produce the magazine, her TV show, a public company, Kmart? For all of the glory that she got in being so smart in building that Martha Stewart name, today, it is all falling apart. It is all going to have to be changed, and there are going to be some very, very busy people over the next week trying to figure that out.

PHILLIPS: You say falling apart. You say change. Is the brand dead?

VORHAUS: No, I don't think the brand is dead.

And, again, I think that right now what we're going to see is -- we're in crisis communications mode. I mean, everybody here needs to regroup. Martha is now convicted. She is possibly and very likely going to be a felon. Over what period of time? If it's a long period of time, what are we going to do with the brand then? If it's a short period of time, let's follow it and see what happens.

But the brand is wounded. Is it mortally wounded? We have yet to see.

PHILLIPS: Well, let's say that she does, indeed, go to jail and you were sitting next to her, Robbie. What would you tell her?

VORHAUS: I would tell her to please just simply admit it now that the guilty -- that the jury has found you guilty. Please, use this as an opportunity to show that money does, in fact, if you allow it to, corrupt, and that you can not play by different rules as anyone else.

I would tell her she's done wonderful things for style, for women, for this -- for a whole generation of people who want to improve their world through homemaking, through cooking. She's great. But, at the same time, as we just heard, if you watched that case, you know that she is guilty. And she is guilty on stupid things, not -- not -- not incredibly complex things, just greed.

PHILLIPS: All right, our Robbie Vorhaus, communications strategist, thank you so much, joining us there live from New York.

Let's go back to outside the courtroom, where our Allan Chernoff was inside the courtroom, also with our legal analyst Jeffrey Toobin, a number of our reporters getting a feel for how it all went down, how everybody reacted.

Allan, are things calming down a bit, or no?

CHERNOFF: No, I wouldn't say so at all, Kyra.

We've had the jurors now walking out of the courthouse. Some of them are remaining inside to be interviewed by the media. But those who step out, they are being swamped by the press. And we will certainly have tape of that as soon as we can get it to you.

Now, in terms of the charges that have been filed and, of course, that Martha Stewart was found to be guilty on, let's quickly run through them, Martha Stewart, first of all, found guilty of conspiracy. And there were three portions to this, conspiracy to obstruct justice, false statements and perjury. And she was found guilty of all those objects of the conspiracy.

False statements -- remember, there were two false statement charges against Martha Stewart. She was found guilty on both of them. The first false statement charge involved in an interview that was conducted on February 4 of 2002 with the Securities and Exchange Commission and the U.S. attorney's office here in New York. And there were seven different statements that Martha Stewart was charged with there, seven different statements where the government alleged she lied.

On six of those seven statements, she was found to have lied, to basically have been guilty there. This was essentially Martha Stewart saying that she had an agreement with Peter Bacanovic to sell her ImClone stock if the price fell to $60 a share, which it did back on December 27, 2001, the day that she did sell her ImClone stock.

The second false statement count involved statements she made on April 10 in an interview with the SEC and the U.S. attorney's office. And there, there were two specifications that she was found guilty of, two of three specifications. And then the last count against Martha Stewart, obstruction of justice, she was found guilty on that one -- Kyra.

PHILLIPS: Allan Chernoff, outside the courtroom, thank you so much.

As Allan went over the counts Martha was found guilty of, the charges carry up to 20 years in prison, but Stewart likely will serve less time, according to our legal analysts. Sentencing is set for June 17. Her ex-broker, Peter Bacanovic, also found guilty on charges, including conspiracy, perjury, and obstruction of justice.

Now, just getting a statement, interesting to read this letter, Robbie Vorhaus, our communications strategist, saying that he would advise Martha to come forward and apologize and talk about what she did openly and honestly. We're just now getting this letter from Martha Stewart from her Web site.

It says, "Dear friends, I'm obviously distressed by the jury's verdict, but I continue to take comfort in knowing that I have done nothing wrong and that I have the enduring support of my family and friends. 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's your continued support that will keep me going until I am completely exonerated. Sincerely, Martha Stewart."

Martha also talking to our Larry King back in December of 2003. Here's what she had to say then.

(BEGIN VIDEO CLIP)

LARRY KING, "LARRY KING LIVE": Is all of this very shocking to you?

MARTHA STEWART, MARTHA STEWART LIVING OMNIMEDIA: No one is ever prepared for such a thing.

KING: I wouldn't imagine.

STEWART: No one. And no one is ever strong enough for such a thing. No one is -- is -- you know, you have no idea how much worry and sadness and grief it causes.

KING: And I would imagine especially if someone thinks, I didn't do anything wrong.

STEWART: Exactly.

KING: So that's got to drive you berserk.

STEWART: Well, but that -- having done nothing wrong, allows you to sleep.

KING: It does?

STEWART: Allows you to continue your work, gives you -- gives you the opportunity to think about other things. But there's always the worry. I mean, a trial's coming up.

(END VIDEO CLIP)

PHILLIPS: Martha Stewart, once again, talking to our Larry King back in December of 2003. Sticking by her statement, even in a letter today, as the jury found her guilty on four counts, saying that she still believes she has done nothing wrong, and she will keep going until she is completely exonerated.

We're going to go back to Allan Chernoff outside the courtroom there in New York -- Allan.

ALLAN CHERNOFF, CNNFN CORRESPONDENT: Kara, critical to the jury reaching a verdict of guilty was their belief in the star government witness, Douglas Faneuil, who had been assistant to the stockbroker, Peter Bacanovic. Mr. Faneuil's attorney has just given us a statement. He said, "Doug Faneuil had no interest in having this case brought. He came forward because his conscience told him it was the right thing to do. He was solely a witness telling the truth."

A statement from the attorney representing Douglas Faneuil, the government's star witness in this case, who clearly had quite a bit of credibility with the jury -- Kara.

PHILLIPS: Allan Chernoff, outside the courtroom there. Thank you so much.

Kendall Coffee, our legal analyst, once again joining us live out of Miami, taking a look at the newest bit of information that we just received.

Kendall, Robby Vorhaus (ph), a communications strategist, had a different opinion, thinking that this was a time for Martha to come forward and apologize and give a very detailed interview, confession. We're getting this statement now from her Web site saying she is sticking by the fact that she has done nothing wrong and she will keep going until she is completely exonerated. Tell us what happens next.

KENDALL COFFEY, CNN LEGAL ANALYST: Well, I guess she's saying she's going to appeal it. But that's the tradeoff you have to decide about. Because when you're going to go into a sentencing, Kara, the best thing you can do is acknowledge, accept responsibility, say you made a mistake, and move on, and hope that the judge will be lenient in the amount of time. And really make a statement that the whole world will probably listen to with some appreciation and perhaps sympathy. People are forgiving. But if she's going to continue to deny, deny, deny, after the government presented an overwhelming case, after the jury made finding after finding of her guilt, that's a colossal mistake. Because it means she's really just even committing more collateral damage to her own reputation, which frankly has been devastated by the events of today.

PHILLIPS: You believe she will spend time in jail, right?

COFFEY: I do.

PHILLIPS: OK. Let's talk about that. You know, there's obviously been a lot of criticism over the years on how famous people, star power types are treated, where they are sent to jail, what type of conditions the jails are.

I mean, is this someone that's going to be surrounded, if indeed she does go to prison, by a bunch of thugs? Or is she going to have a private area with different treatment?

COFFEY: I would be surprised if she lands in some kind of a club fed and gets to work on her golf handicap. I certainly think that in a case like this, with everybody watching, what a judge is going to want to do is go by the book. And take the points, calculate it, say what the prison sentence would seem if this had been Martha Jones, give a sentence based on that.

And then the Bureau of Prisons, I think, in terms of assigning to a facility of incarceration, is also going to lay it right down the middle. With everything that's gone on with so many people watching, I don't think anybody's going to want to be accused of giving her kinder and gentler treatment because of who she is.

PHILLIPS: You talk about this being a historic day for the Department of Justice, Kendall. Once again, do you believe this is a pretty historic move? A major message to corporations, to CEOs, to stockbrokers, to financial houses?

COFFEY: All of the above. And I think it really is a very powerful tribute to what the Department of Justice can do.

I think the defense community scoffed a little bit at the ability to get convictions against two people who are very powerful, very smart, who had impeccable reputations, based upon largely the testimony of a 28-year-old guy who is an admitted liar and admitted drug user who got a sweetheart deal from the government. But instead of becoming someone who looked like a lying rat selling out his former boss and his former client, he came off as a younger Matthew Broderick. And I think the job that the government did in presenting this cooperator witness tells them that they are really learning how to get to the top of their game in presenting white collar cases.

There are other things in here that I think are powerful lessons, too. But the way that Douglas Faneuil came across as a cooperating witness is going to be textbook 101 for government prosecutors.

PHILLIPS: Kendall Coffey, legal analyst. Thanks so much, Kendall.

We're going to go back outside the courthouse. Allan Chernoff there.

Allan, I'm wondering, Dominick Dunne working on another book?

CHERNOFF: PHILLIPS: Dominick Dunne is with us right now. He was among the dozens of writers sitting in the courtroom through the entire trial.

And Dominick, thank you for joining us. First of all, your reaction to the verdict?

DOMINICK DUNNE, AUTHOR: Well, I was stunned by the verdict. I did not expect this at all. And I know I'm a prejudiced person, because she's a friend of mine, a good friend of mine. And Peter Bacanovic is a friend of mine.

And I thought she might have been guilty of one of the charges. It just never occurred to me that she would go down like this.

CHERNOFF: Do you think there was a huge mistake made by the defense attorneys on either side?

DUNNE: Well, I think it probably would have been better if she had taken the stand now. But I mean anybody can -- in hindsight can say that. They seemed like -- I mean, she had Robert Morvillo. Well, you can't get any better than him. He's a great lawyer.

And I don't know. I'm just staggered by it.

CHERNOFF: Well, certainly the judge did tell the jury not to consider the fact that Martha Stewart didn't take the stand, not to consider the fact that Bacanovic didn't take the stand.

DUNNE: That's right. That's right. That's right. And maybe they didn't. But I think that it might have helped now in hindsight.

You know, you can always tell when the jury walks in to a room that not one juror looked toward the defense table. That's a signal that things are not going to be good.

CHERNOFF: You had a sense as soon as the jury walked in?

DUNNE: Yes.

CHERNOFF: And it was only moments later that we did hear from the judge.

DUNNE: Yes. And there was one juror especially who I always felt was -- felt very close to Martha. And when she didn't look, I thought, oops.

CHERNOFF: And that was indicated in the questioning of the jurors prior to the beginning of the testimony.

DUNNE: Yes.

CHERNOFF: One juror even said that, "I follow her closely, use some of the recipes Martha Stewart had recommended." And in spite of that...

DUNNE: Yes. Anyway, it was a terrible shock to me.

CHERNOFF: Dominick Dunne, thank you for joining us.

DUNNE: Thank you.

CHERNOFF: Kyra, back to you.

PHILLIPS: All right. Allan Chernoff, thank you so much, outside the courtroom there.

Just now getting this over right off our computer. This comes from one of the jurors in the Martha Stewart trial. This is from Sara Walker (ph): "This is a victory for the little guys. No one is above the law."

Actually, this is coming to us from -- Sara (ph), I apologize -- actually the juror, a black male. It says here -- the quote, "This is a victory for the little guys. No one is above the law."

Now I'm being told that this is Bacanovic's family here. Peter Bacanovic's family coming down through the cameras. I'm told that's his mother.

Is that right?

A picture there of his mother leaving the courtroom as she was inside witnessing her son, obviously the ex-broker of Martha Stewart, as he was found guilty on charges, including conspiracy, perjury, and obstruction of justice.

Once again, if you're just tuning in, we are continuing to follow the breaking news. Martha Stewart convicted today of obstructing justice and lying to the government about the sale of her ImClone stock. The charges carry up to 20 years in prison. But we are told by our analysts likely she will serve less time.

Sentencing is set for June 17. Stewart also is saying that she plans to appeal now. And as we told you, her ex-broker, Peter Bacanovic, also found guilty on charges, including conspiracy, perjury, and obstruction of justice.

Quite a historic day for the Department of Justice, according to our legal analyst, Kendall Coffey. We're going to continue our live coverage now. Judy Woodruff picks it up from here with "INSIDE POLITICS."

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