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Stewart grimaced upon hearing the verdict, and her eyes widened.

The jury of eight women and four men reached the verdicts on the third day of deliberations in the case.

Sentencing was set for June 17.

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Chronology of the scandal: See below
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Trading in her company, Martha Stewart Living Omnimedia, was halted after the verdict. Earlier the stock shot up on word of a verdict.

The charges centered on why Stewart dumped about $228,000 worth of ImClone Systems stock on Dec. 27, 2001, just a day before it was announced that the Food and Drug Administration had rejected ImClone’s application for approval of a cancer drug. The announcement sent ImClone’s stock plummeting.

Stewart and Bacanovic claimed they had a standing agreement to sell when the price fell below $60. But the government contended that was a phony cover story and that Stewart sold because she was tipped by her broker that ImClone CEO Sam Waksal was frantically trying to dump his own holdings.

Waksal later admitted selling his stock based on advance word of the FDA decision. He is serving seven years in prison for insider trading.

Stewart, who averted more than $51,000 in losses by selling when she did, was not charged with insider trading; instead, she and her broker were accused of lying about the transaction and altering records to support the alleged cover story.

The government now may press to have her removed from the board of her company. She stepped down as chief executive after being indicted last summer but remains as chief creative officer.

The verdict jeopardizes the media empire that Stewart carefully built over the years in becoming the nation’s premier homemaker — an image she put forth by way of magazines, TV programs and everything from cookie cutters and garlic presses to bedsheets and pillows. Martketing experts have said that the company is so closely tied to her name and face that the effect could be devastating.

Stewart was easily the most recognizable face in the government crackdown on corporate crime that began with the collapse of Enron in 2001. Stewart’s supporters claim she was being targeted because of her celebrity status.

The government’s star witness was Douglas Faneuil, a former Merrill Lynch & Co. assistant who said he passed the tip about Waksal to Stewart on orders from his boss, Bacanovic. Faneuil said that when he told Bacanovic about a flurry of selling by the Waksal family that morning, Bacanovic blurted: “Oh my God, get Martha on the phone.”

He also said Bacanovic pressured him to lie about the transaction.

Prosecutors further contended Bacanovic doctored a worksheet of Stewart’s portfolio after the fact by making the notation “(at)60” next to her ImClone stock. A forensics expert with the Secret Service testified that the mark was made in a different ink.

In addition, Stewart’s personal assistant testified Stewart altered a computer log of a Dec. 27, 2001, message from Bacanovic, then immediately told her to restore the log to its original wording.

Also, a longtime Stewart friend, Mariana Pasternak, testified Stewart confided that she had known the Waksals were selling. Pasternak said Stewart added: “Isn’t it nice to have brokers who tell you those things?”

But Pasternak admitted on cross-examination that the remark may have been something she herself thought, not something Stewart said.

In closing arguments, prosecutor Michael Schachter said the story about the arrangement to sell ImClone at $60 was “phony,” “silly” and “simply an after-the-fact cover story.” He said Stewart and her broker “left behind a trail of evidence exposing the truth about Martha Stewart’s sale and exposing the lies they would tell.”

For its part, the defense tried to discredit Faneuil as an admitted drug user and a liar. When the scandal broke, he initially backed up his boss, but later pleaded guilty to a misdemeanor, saying he had received an extra week of vacation and a free airline ticket for keeping his mouth shut.

Stewart did not testify, and her lawyers called only one witness during a defense that lasted less than an hour.

In closing arguments, defense attorney Robert Morvillo said that the conspiracy as outlined by the government was too sloppy to be true. He urged the jury to let Stewart get back to “improving the quality of life for all of us.”

“If you do that,” he said, echoing Stewart’s slogan, “it’s a good thing.”

Stewart could have faced even more prison time, but the judge threw out the most serious charge — a securities fraud count that alleged she deceived investors in her own company when she publicly declared her innocence in the scandal. The judge had referred to the charge as “novel.”

At times, the trial seemed more fodder for gossip columns than the financial pages. Stewart’s arrival each day was chronicled by a barrage of photographers and camera crews, with the tabloids taking careful note of her expensive handbags and stylish heels. Celebrities Rosie O’Donnell, Bill Cosby and Brian Dennehy all showed up in court in support of Stewart.

Stewart had a reputation before the trial as a ruthless businesswoman, and in court she was portrayed as rude, insulting, demanding and cheap. According to testimony, she once threatened to take her business elsewhere because she did not like her brokerage’s telephone hold music.

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A timeline of events in the Martha Stewart stock trading scandal:

—Oct. 31, 2001: ImClone Systems asks the government to review Erbitux, its new cancer drug.

—Dec. 26, 2001: ImClone founder Sam Waksal is tipped that the government will deny the company’s Erbitux application, then tips his daughter to sell her ImClone stock and tries to sell his own.

—Dec. 27, 2001: Stewart sells all 3,928 shares of her ImClone stock. The government later contends she was tipped that Waksal was trying to sell his shares.

—Dec. 28, 2001: The FDA makes its decision public. On Dec. 31, the first trading day after the news, ImClone drops 18 percent.

—Jan. 7, 2002: Stewart’s broker, Peter Bacanovic, tells Securities and Exchange Commission attorneys that he and Stewart had agreed on Dec. 20, 2001, to sell ImClone if it fell below $60.

—Feb. 4, 2002: Stewart tells the SEC, federal prosecutors and the FBI the same story.

—June 12, 2002: Waksal is arrested and charged with insider trading. Stewart issues a statement repeating her assertion that she had a $60 stop-loss order.

—June 18, 2002: Stewart insists she is “fully” cooperating with authorities.

—Oct. 2, 2002: Former Merrill Lynch & Co. assistant Douglas Faneuil pleads guilty to taking a payoff to keep quiet about the Stewart stock trade.

—Oct. 15, 2002: Waksal admits tipping his daughter to sell ImClone ahead of the government decision and trying to sell his own shares.

—June 4, 2003: Stewart and Bacanovic are indicted. Stewart resigns as chairwoman and CEO of her company but remains chief creative officer and a board member.

—June 5, 2003: Stewart unveils a personal Web site in which she proclaims her innocence and insists she will fight to clear her name.

—June 10, 2003: Waksal is sentenced to more than seven years in prison.

—Nov. 7, 2003: Stewart tells ABC she is scared of prison but “I don’t think I will be going to prison.”

—Jan. 6, 2004: Potential jurors fill out a questionnaire that reportedly asks whether they have visited Stewart’s Web site or cooked with her recipes.

—Jan. 26: Jury of eight women and four men is selected.

—Jan. 27: Prosecutor claims in opening statements that Stewart sold ImClone stock based on a “secret tip,” then lied to cover it up. Stewart’s attorney compares case with the Big Brother novel ?.”

—Feb. 3-4: Faneuil testifies that Bacanovic ordered him to tell Stewart that Waksal was selling stock. Faneuil claims Bacanovic pressured him to cover it up.

—Feb. 10: Stewart assistant Ann Armstrong testifies Stewart personally altered log of a message Bacanovic left on day she sold ImClone. But Armstrong says Stewart ordered the message changed back.

—Feb. 19: Forensic expert testifies ink Bacanovic used on worksheet of Stewart’s portfolio to make an “(at)60” notation next to ImClone is different from other ink on the document. Stewart friend Mariana Pasternak says Stewart told her days after ImClone sale that she knew about Waksal selling and says Stewart added: “Isn’t it nice to have brokers who tell you those things?”

—Feb. 20: Under cross-examination, Pasternak backtracks on “Isn’t it nice” remark, saying it could have been something she herself thought. Government rests its case.

—Feb. 23: Heidi DeLuca, a Stewart business manager, says she has a memory of Bacanovic discussing plans to sell Stewart’s ImClone shares at $60.

—Feb. 25: Stewart lawyers call just one witness — a lawyer whose notes raise question about what questions Stewart was asked in interviews with the government. Government plays tape of Bacanovic saying he never discussed $60 plan with DeLuca.

—Feb. 27: U.S. District Judge Miriam Goldman Cedarbaum throws out securities fraud count against Stewart.

—March 3: Jury begins its deliberations.