Monica Beam, a shareholder of MSLO, also brought a derivative suit against Stewart and other directors and officers of the company. It went before the Supreme Court of Delaware in 2004 and was ultimately dismissed.
After a highly publicized six-week jury trial, Stewart was found guilty in March 2004 of felony charges of conspiracy, obstruction of an agency proceeding, and making false statements to federal investigators, and was sentenced in July 2004 to serve a five-month term in a federal correctional facility and a two-year period of supervised release (to include five months of electronic monitoring).
Stewart wanted to go to prison in Connecticut or Florida. She did not want to serve at the Federal Prison Camp in Alderson, West Virginia, due to its remote location; in 2004, her lawyer said that the remoteness would make it difficult for Stewart's then-90-year-old mother to visit. Judge Miriam Goldman Cedarbaum recommended to the Federal Bureau of Prisons (BOP) that Stewart be given her first choice, Federal Correctional Institution, Danbury, or her second choice, Federal Correctional Complex, Coleman. However, a spokesperson for the U.S. Department of Justice said the BOP would not send her to FCI Danbury, because the news media could too easily access the facility. The bureau could not send Stewart to FCC Coleman, because of complications from Hurricane Ivan; the Coleman complex filled because inmates from Federal Correctional Institution, Marianna, were moved to Coleman. Therefore, the Federal Bureau of Prisons assigned Stewart to Alderson. The spokesperson said he was concerned the assignment to Alderson could be perceived as being vindictive. Stewart's daughter, Alexis, said she believed the BOP "may have made a point of sending her far away."
Judge Cedarbaum ordered Stewart to report to her prison sentence before 2:00 p.m. on October 8, 2004. By September 27, 2004, Stewart received the BOP ID 55170-054. At about 6:15 a.m. on October 8, 2004, she reported to FPC Alderson. Stewart said her prison nickname was "M. Diddy." While in confinement, she took a job and became an informal liaison between the administration and her fellow inmates. The People special Scandals! That Rocked America stated, "Some expected America's goddess of domestic perfection to fall into terminal despair." Stewart was released from FPC Alderson at 12:30 AM on March 4, 2005. She was then placed in a two-year term of supervised release; during five of those months, she was placed in home confinement with electronic monitoring. Stewart served her home confinement at her residence in Bedford, New York. She was allowed to leave her house for 48 hours per week for work-related visits. After her home confinement ended, but while her supervised release continued, she was required to remain employed and not to associate with people with criminal records. In addition, during the supervised release, she was required to receive permission from federal officials if she was going to leave the jurisdiction of the United States District Court for the Southern District of New York.