Martha Stewart's criminal conviction sends the message that the government will zealously pursue those it suspects of insider trading, even when the parties involved are deep-pocketed, powerful and well-connected, legal experts say.
It is a message that prosecutors hope will be telegraphed to everyone from the ambitious corporate executive who considers cutting corners to the guy who gets a juicy inside tip about his brother-in-law's company.
"It's a wonderful day for the rule of law," said Stephen Presser, a professor of business law at Northwestern University's School of Law and Kellogg School of Management.
"The message this sends is no one is immune. No one is above the law," Presser said.
"This is a better Greek tragedy than Sophocles could have come up with. If she hadn't lied, she wouldn't be going to jail."
Stewart, who made a fortune teaching people how to slip-cover chairs, divide flower bulbs and frost wedding cakes, was convicted Friday on four criminal counts of obstructing justice, lying to the government and conspiracy related to her 2001 sale of stock in ImClone Systems Inc.
She never was charged with insider trading. But the jury didn't buy Stewart's explanation for her exquisitely timed sale of stock in ImClone, a biotech company that was awaiting U.S. Food and Drug Administration approval of a cancer drug.
Stewart sold her ImClone stock the day before the FDA rejected the drug. She had received a tip from her broker that ImClone Chief Executive Sam Waksal was dumping his stock. Stewart denied she acted on inside information, arguing that her sale was triggered by a prearranged agreement to sell at a certain price.
The same jury that convicted Stewart also found her former Merrill Lynch & Co. broker, Peter Bacanovic, guilty of conspiracy, perjury, making a false statement and obstruction of justice,
The verdict against Stewart likely means prison time for the 62-year-old celebrity who epitomizes meticulous homemaking and elaborate entertaining, legal experts say.
Some Stewart supporters contend that prosecutors fervently pursued the case simply because she was a well-known woman chief executive in a man's world.
But prosecutors had little choice, ethics experts say, given the recent cases of high-profile corporate scandals.
Dennis Kozlowski, the former chief executive of Tyco International Ltd., is on trial, accused of wrongfully spending millions in company funds on everything from his wife's $2 million birthday party in Sardinia to a $15,000 umbrella stand.
On Tuesday, Bernard Ebbers, the former CEO of telecom giant WorldCom Inc., was charged with securities fraud, conspiracy and orchestrating the largest corporate accounting scandal in U.S. history.
Twelve days before that, Jeffrey Skilling, the former CEO of Enron Corp., was charged with 35 counts of fraud, insider trading and other crimes. He faces up to 325 years in prison and fines totaling more than $80 million if convicted on all counts.
Case hard to ignore
Even though the dollars involved in Stewart's case are much smaller, the government couldn't look the other way, attorneys say.
"You've got a series of corporate scandals involving rich and powerful people. Here you have another rich and influential person, and there's some evidence that she was engaged in insider trading," said Ron Allen, a professor of criminal law at Northwestern.
"In a way, she was made an example of, but I don't think she was picked out to be an example. The government probably felt it had little choice," he said.
There is reason to believe that white-collar criminals can be deterred by the successful prosecution of others, according to criminal law experts. That's because their crimes are not those of passion and are often carefully considered. But the deterrent effect wanes over time.
Trouble learning from past
"Humans, being what they are, that effect goes away and people get greedy again," Allen said.
Prosecutions of high rollers such as Ivan Boesky, Michael Milken and others in the 1980s were supposed to have produced a cleansing and a new attitude on Wall Street. But it clearly didn't last.
"Memories are surprisingly short," said Paul Hodgson, senior research associate at the Corporate Library research firm. "The effect of those cases lasted 10 years before people started to think they could get away with it again."
Similarly, Leona Helmsley's conviction on tax evasion charges in the early 1990s hasn't stopped people from trying to avoid the sales tax on expensive items by having them shipped out of state. In fact, Kozlowski is charged with doing exactly that with $13 million in artwork.
Real deterrence comes from punishment, argues Paul Lapides, director of the Corporate Governance Center at Kennesaw State University near Atlanta.
The famed "perp walks" of fallen executives being led away in handcuffs make great photographs but aren't very effective in the long run, he said.
"If you want to stop white-collar crime, you need to sentence people and put them in jail," Lapides said. "To me, sentencing is the only serious deterrent."
Stewart promises appeal
As for Stewart, she showed little sign of contrition Friday. After the guilty verdict was announced, she posted a letter on her personal Web site in which she vowed to appeal the conviction.
Initially, the message said, "I am 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."
The reference to having done "nothing wrong" was quickly dropped, however. The sentencing guidelines that judges use consider whether defendants have accepted responsibility for their actions.
Outside the legal world, opinions varied widely about whether Stewart's fate would influence the behavior of others.
Liz Kadleck, a 26-year-old Oak Park resident, thinks Stewart's conviction sends a message because "Martha Stewart is a big name. If they can get her, people might think twice about insider trading."
But Stewart's defeat does not make Lucille Linzie any less cynical.
"I think the whole justice system is terrible," said Linzie, a Broadview resident who is a fan of Stewart's line at Kmart.
"A lot of innocent people go to jail, and wealthy people buy their freedom," she said. "Just because she was convicted doesn't mean my life is going to change."
Likewise, Gedas Masilionis of the Near North Side was almost certain Stewart was going to beat the rap.
"She's a celebrity," said Masilionis, who works in a food market. "I was sure she was going to be found not guilty. But she knew better, and she did all those things anyway."
Others such as Allison Whitney, 28, are convinced Stewart will find a way to make sparkling lemonade out of the lemons she has been handed.
"She'll have street credibility," the University of Chicago cinema student said.
"Now you can have a convicted criminal giving you advice on how to make a creme brulee."