Corporate America Put on Notice

Martha Stewart's conviction has some tough implications for future trials.
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Updated from 6:59 a.m. EST

Now for the Martha Stewart hangover, in which Wall Street goes soul searching over how a $240,000 stock trade ended up sending one of the most famous women in the country to prison.

In theory, the relative triviality of the sum will force executives considering even the tiniest of malfeasance to think twice about its consequences, restoring a semblance of justice to a corporate landscape that looked woefully out of balance when Frank Quattrone's trial ended in a hung jury. Stewart's conviction is a "victory for the little guys," as one juror put it; a lesson to the rich and powerful.

How badly was that lesson needed? Stock traders thought she'd walk for sure, as evidenced by the nearly 20% run-up in Stewart's shares just prior to Friday afternoon's verdict. (They were recently changing hands for $9.50 on the Instinet premarket session, down $1.36, or 12.5% from their Friday close. To see a story about the future of the stock,

click here .) The furious bidding reflected a belief among speculators that the deliberations' brevity signaled acquittal, that the case's complexity had made it too hard for amateurs to judge resolutely.

What it in fact signaled, of course, was how little the eight women and four men of the jury struggled with their verdict. They found Stewart arrogant, and felt she acted like she "held herself above (the law)," in juror Chappel Hartridge's words. It was no leap for these jurors to hold Stewart accountable in their world for behaving like she lived somewhere else.

"It might give the average guy a little bit more confidence feeling that, 'I can invest my money in the market and it might be on the up and up,' " said Hartridge.

Putting aside the issue of whether sexism was involved in Stewart's prosecution, the conviction should strike fear into the Ebbers, Rigases and Skillings of the world, executives who by any measure are alleged to have perpetrated frauds of vastly greater moment than hers.

It confirms their worst fear, that juries are not inclined simply to punt on matters of financial esoterica. The case itself, focusing as it did on behavior after-the-fact, is a legal road map to future convictions, since practically everyone considers lying once they are caught red-handed. And it is a double dose of motivation for government lawyers, cheering them to further victory while simultaneously making unthinkable the prospect of letting more-serious sinners go free.

"We are at the beginning of what promises to be a long cycle of increased scrutiny, more regulation and certain indictments as the scope of government investigations broaden into every crevice of corporate America," said Jim Walden, a criminal defense lawyer and former federal prosecutor.

Lawyers think the creativity of Stewart's prosecutors contains the trial's most concrete implication. Rather than focus on the crime, head straight for the cover-up.

"The consistent theme of using obstruction as a government prosecutive theory is likely to expand," said Stephen Ryan, a criminal defense attorney and former federal prosecutor. "It isn't what people do, it's how they respond to the government investigation that the government is criminalizing."

Ryan said the Martha Stewart verdict reinforces a trend that was demonstrated in the Arthur Andersen case. "Like the Stewart case, the Arthur Andersen case was one where the government didn't go after the complex transaction itself. Just what came after."

Arthur Jakoby, criminal defense attorney and former

Securities and Exchange Commission

prosecutor, agreed "the government's victory will send a loud message to corporate executives, especially where there is an allegation of perjury."

Jakoby warned, however, that "every case is unique." He doesn't expect to see an increase in plea-bargaining due to the Martha verdict.

If any downside exists for the government in Stewart's prosecution, it is that they have dispensed with their highest-profile case too early in the process. It's possible the public will tire of courtroom drama now, costing prosecutors publicity points as they seek to erect monuments to the futility of corporate crime.

But Stewart's celebrity breaks in prosecutors' favor by possibly compelling famous defendants to take the stand in future trials. It's a risky legal tactic that prosecutors welcome, but defense lawyers must now wonder whether a jury's wish to hear from a famous defendant outweighs the risk that his testimony will be incriminating.

"The verdict will make corporate executives think twice about the risks of a trial and the potential perils of declining to testify," says Walden.

From a public relations perspective, the question of "will she or won't she" testify remained a factor in Stewart's case nearly until the end, keeping the public's interest piqued.

That's something Ebbers, Skilling and Rigas might want to think about before their trials. Even if they don't get the same interest as Martha.