Even in a crisis Martha Stewart finds it hard not to sweat the small stuff. The day after she resigned from the board of the New York Stock Exchange amid an insider-trading investigation last October, the doyenne of domesticity took a break—sort of—from taping a TV segment about reupholstering seat cushions to deliver an emotional speech thanking her staff for their "devotion to the company through this f—-ing mess." You could have heard a pin drop—if it weren't for the thump, thump, thump of the staple gun that Stewart kept methodically pressing into the cushion. "She never stopped," marvels one staffer. "She kept stapling through her whole speech."

Federal prosecutors better hope they never come between Stewart and her staples. In the 17 months since the U.S. Attorney's office and the SEC launched a probe of her sale of nearly 4,000 shares in the biotech company ImClone Systems on Dec. 27,2001, Stewart, 61, has kept a low profile while denying any wrongdoing. But since she was charged June 4 with securities fraud and four additional counts including obstruction of justice (see box), she has been on the offensive, posting a letter on the Internet declaring, "I am innocent—and...I will fight to clear my name."

Some believe it was that name—emblazoned on everything from cookbooks to bath towels—that got her into this mess in the first place. "They are after her because of the publicity she brings to the corporate-fraud issue," says Ralph Ferrera, a D.C. securities lawyer and former general counsel to the SEC. Others says she's being targeted because she's a woman. "Her gender plays some part in this," says CNN anchor Lou Dobbs. "We wouldn't hear the criticism that I've heard of her aggressive defense if she were a male CEO." Many commentators have also noted that the $45,000 Stewart, a former stockbroker, saved on the deal she is charged with covering up is lunch money compared with the billions involved in the corporate fraud at companies like Enron and Worldcom. Then there's the simple fact that she is just Ms. Perfect. "We all want to be like her," says Gail Evans, the author of Play Like a Man, Win Like a Woman, "but we hate her because our table never looks like her table."

Could that have had anything to do with the charges against her? No way, says U.S. Attorney James Comey. And for the record, his department has prosecuted more than 24 obstruction cases this year. Prosecutors have also indicted Enron's Andrew Fastow and Tyco's Dennis Kozlowski and have won a seven-year prison sentence for ImClone's Sam Waksal. "Martha Stewart is not being prosecuted because of who she is," Comey told reporters, "but because of what she did."

Although in the end prosecutors did not file a charge of insider trading against Stewart (the SEC has mounted a civil case against her), they did charge her with lying and falsifying records in a conspiracy with her stockbroker Peter Bacanovic to cover up a crime. If convicted, she could face up to 30 years in prison and $2 million in fines. An additional charge that she lied about her innocence to investors to pump up the stock price of her company, Martha Stewart Living Omnimedia, could cost her millions in potential lawsuits if she's found guilty. "She should and will go to jail," says House Committee on Energy and Commerce staffer Ken Johnson, whose office investigated Stewart, "and she'll be folding sheets for a living instead of selling them." Yet Stewart reportedly rejected a government plea bargain in which she would acknowledge guilt in exchange for fines and a minimal jail term, opting instead to fight. "She could have nipped this in the bud," says an ex-colleague. "But that is not in Martha's personality, to admit she made a mistake."

For her part, Stewart seems stunned that anyone might have it in for her. New Yorker writer Jeffrey Toobin, who interviewed her, says he was struck by her "true sense of bewilderment that there are so many people out there who seem to hate her." Those ranks may be thinning. When word first broke of her troubles, "there might have been glee," says her friend R. Couri Hay, an editor at Hamptons Magazine. "But now people in her circles think this has gone too far."

After spending time this year at her homes in Westport, Conn., and East Hampton, N.Y., with daughter Alexis, 37, and mother Martha Kostyra, 88, Stewart has begun to venture out to the benefits and garden sales that once filled her calendar. On Sunday, June 8, Stewart, who stepped down as CEO of her company on June 5, even stopped by a favorite restaurant, Elio's, on Manhattan's Upper East Side. "She seems to be in better spirits since the indictment," says a friend. "At least now it's not hanging like a sword of Damocles over her head." Not surprisingly, Stewart has also found solace in work. "Even if they tear her down she keeps getting up," says a former staffer. "A person like Martha does not stop. Martha will never go away."

J.D. Heyman
K.C. Baker in Westport, Sharon Cotliar, Joanne Fowler, Jennifer Frey, Liza Hamm and Diane Herbst in New York City and Colleen O'Connor in Washington, D.C

[This article contains a table. Please see hardcopy of magazine or PDF.]

  • Contributors:
  • K.C. Baker,
  • Sharon Cotliar,
  • Joanne Fowler,
  • Jennifer Frey,
  • Liza Hamm,
  • Diane Herbst,
  • Colleen O'Connor.