Wall Street housecleaning turns to Stewart

The criminal indictment Wednesday of Martha Stewart could send a powerful message to corporations and individuals alike about the importance of proper etiquette on Wall Street.

While other prominent individuals have been prosecuted for financial misdeeds in the past - from Ivan Boesky to Charles Keating Jr. - Ms. Stewart is the most visible person ever charged with obstruction of justice related to insider trading.

Experts say the nine-count indictment of the self-appointed Queen of Good Taste signals that no one is above the law and is part of an effort to restore confidence in a stock market marred in the past two years by a series of financial scandals.

"It sends a very strong signal [to Wall Street]," says David Beim, a finance professor at Columbia Business School in New York. Her offense, in his view, is minor. But "one of the notable features of the recent governance crisis is how few executives have been indicted."

The multimillionaire icon of tasteful living was indicted by a federal grand jury in New York on charges of securities fraud, obstruction of justice, and making false statements. She pleaded innocent to all charges. The 41-page indictment also charged Stewart's former stock broker, Peter Bacanovic, with obstruction and perjury. He too pleaded innocent to all charges.

The charges stem from her sale of 4,000 shares of ImClone Systems Inc., a biotechnology firm run by a friend. Stewart sold the stock in December 2001, just before the government released a negative decision about an ImClone drug.

Stewart has denied any wrongdoining in the case. She has long said she had an agreement with her own stockbroker to sell her shares when they reached a certain price and that she wasn't influenced by any tip from a friend. The founder of ImClone, Sam Waksal, was arrested in June of 2002 and charged with trying to sell his own shares before the information about the cancer drug became public. He has since pleaded guilty and awaits sentencing.

Since the beginning of the insider trading scandal, the probe has drawn the kleig-light attention of everyone from Congress to the "blue light special" crowd.

That's because Stewart has become a household name, known for everything from her sheets and towels at Kmart to her food shows to her upscale magazine, Martha Stewart Living.

All this means a criminal case would publicize the concept of fair play on Wall Street to an unprecedented degree.

"More than anything, the publicity about this case has created a massive following," says Chris Bebel, a former Securities and Exchange Commission lawyer, now with the Houston firm Shepherd, Smith, and Bebel. "People have seen indications the securities laws were violated, and now they expect the government agencies to step to the plate and discharge their duties to protect the public."

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