Martha Stewart turning the tables

WHAT HAD appeared an open-and-shut case - the trial of lifestyle guru Martha Stewart, which got under way this week in Manhattan - is looking a lot less certain amid speculation that she stands a better chance of acquittal than expected.

Even as high-profile financial prosecutions go, there is a lot at stake. If Stewart loses, her career could be over and her multimillion dollar media empire at risk.

If the federal prosecutors lose, their credibility in a slew of other fraud and obstruction of justice trials over the next few months could go up in smoke. That could seriously set back the assault on white-collar and corporate crime in the US.

Even Wall Street has changed its mind about Stewart's chances. Shares in her company, Martha Stewart Living Omnimedia, have been creeping up, reaching their highest since last May, reflecting a change in public perception.

She was reviled when accusations surfaced last year that she sold shares in ImClone Systems, the pharmaceuticals company founded and run by her friend Sam Waksal, on inside information he gave her.

But a skilful $1m (£498,000) PR campaign by Stewart - including a website and focus groups at which versions of her defence were tried out - appears to have turned the tables. She says more than eight million people have visited the site.

The public is less inclined to see her as a greedy, dishonest multimillionairess than as a victim of heavy handed regulators whose actions are taking away her wealth and reputation even before she gets to trial.

She is not, in fact, on trial for insider trading - notoriously hard to prove - but for obstruction of justice.

Prosecutors claim she and her stockbroker, Peter Bacanovic, also on trial, lied to them about ImClone trades and falsified records. Stewart herself has refused to admit anything or consider a plea-bargain. 'I am confident I will be exonerated from these baseless charges,' she said.

Her uncompromising stand is echoed by a string of other executives charged of wrongdoing but determined to bet everything in the lottery of a jury trial.

Still to come are the trials of Scott Sullivan, former chief financial officer of WorldCom, John Rigas, founder of Adelphia Communications, Frank Quattrone, the former Silicon Valley star of Credit Suisse First Boston, Richard Scrushy, the former head of HealthSouth, and a gaggle of Enron executives.

Their willingness to go on trial is partly because tougher sentencing guidelines for white-collar crime, imposed by the Justice Department after the Enron collapse, make it unattractive for defendants to settle.

But also, says John Coffee, a Columbia University law professor: 'Prosecutors don't want to risk settling for a mere four or five years' jail time. A lot of people out there lost a lot of money, and punishment under 10 years will be subject to a lot of criticism.'

Besides, according to Henry Hu, a law professor at the University of Texas, they also have the reasonable hope that prosecutors will shoot themselves in the foot. They have done this often enough in similar trials for it to look like a pattern.

A weak prosecution performance in parts of the first trial of Frank Quattrone last year, certainly contributed to the mistrial result. Comments from jurors afterwards showed they had sometimes found the prosecution case hard to follow.

The ongoing trial of Dennis Kozlowski, former head of Tyco, who is accused of stealing hundreds of millions from the company, is also not going well for prosecutors. After four months, they have only just finished presenting their case, having originally promised the jury the trial would be over by Christmas.

Observers say their evidence has been meandering, confusing and often irrelevant. What looked like a 'slam-dunk' against Kozlowski now looks a more even contest.

Prosecutors have spent far too much time dwelling on his excesses of greed and too little actually proving he did anything wrong, participants in the trial say.

Numerous prosecution witnesses - there have been more than 30 - seem to have added little. The entire presentation appears unfocused and slow.

No wonder Stewart sounds so confident. With a strong defence team and an edge in the media war, she stands a reasonable chance of clearing herself.