by TChris

Now that Martha Stewart's trial is over, can the government claim that its victory sends a message to corporate criminals that the time has come to mend their ways? Lee Drutman reminds us that Stewart acted as an individual investor, not as a corporate CEO. He asks us to compare Stewart's actions to the allegations of accounting fraud at Enron, WorldCom, Global Crossing, and Qwest, or to conspiracies between investment bankers and brokers to steer investors into lousy stocks, or to after-hours trading in the mutual fund industry that favored wealthy investors. Will serious corporate criminals quake in fear because Stewart was convicted of lying about an alleged crime (insider trading) with which she was never charged? In Drutman's words: as if.

Drutman also points out that Stewart is likely going to lose her freedom while ten Wall Street banks recently paid fines for their transgressions.

But the fines were a slap on the wrist, barely a day's revenue for most of the firms and even partly tax-deductible. And the individual players in the scams, the executives who directed it and the employees who carried it out, were not made to feel much financial pain for leading millions of investors astray.

Punishments visited upon the mutual funds that permitted after hours trading have been similarly light.

At worst, funds have been ordered to compensate investors for what the funds stole from them and make changes to their governance structures that they should have had all along. Such prosecution is a typical approach for dealing with corporate crime: just pay back what you stole and don't let it happen again. Imagine if such logic were used on common thieves?

If the government sent a message, it's this: We will prosecute an occasional case against a high profile individual on charges that are relatively simple. Most corporate criminals will be happy to live with that message.