Business Scandals Simmer

Martha Stewart arrives at the federal courthouse CBS

The colorful images of a year of white-collar scandals - toga-party videos, executives lavishing themselves with outrageously expensive toys, corporate looting by the billion - may turn out to be just a warm-up act.

Business trials dragged some major CEOs onto the docket in 2003, but the coming year promises equal levels of flamboyance, along with the trial of the biggest name yet to be dragged into court in the government's crackdown on alleged financial corruption.

Martha Stewart, self-styled priestess of the gracious lifestyle, goes on trial in January, accused of lying about why she dumped a small (for her) chunk of stock just before it took a nosedive.

And 2004 is expected to bring more theatrics in the corruption trial of two former Tyco executives, a case that has already featured a videotape of an indulgent Italian bash thrown by ex-CEO Dennis Kozlowski, complete with an ice rendering of Michelangelo's "David" urinating vodka.

Legal experts point out that, while some high-profile examples in the wave of business scandals went to court in 2003, the government faces an enormous challenge in 2004 - carrying its biggest cases to conviction.

"The final chapters in these cases have yet to be written," said Robert Mintz, a former federal prosecutor who now handles white-collar cases in private practice. "There may still be a number of interesting twists in the plot before we get to the end of these stories."

At least one former high-flying CEO has already landed in prison. In June, ImClone Systems founder Sam Waksal became the first major figure from the spate of scandal to be sentenced to prison, more than seven years, for admitting insider trading in his own company.

Days earlier, shielded by a white umbrella under a drizzly gray sky, Waksal's friend Martha Stewart entered a courthouse to be booked on charges she lied about why she sold 3,928 shares of ImClone around the same time, in late 2001.

Prosecutors say she was tipped that Waksal was trying to sell after receiving advance word of a negative government report that would weaken ImClone stock. Stewart says she had a standing order to sell when the stock hit $60.

Stewart's trial is set to begin Jan. 12. In the meantime, she has mounted a vigorous public defense, including an often-updated personal Web site and an interview with ABC's Barbara Walters.

Stewart, once worth $1 billion, saved herself only about $50,000 by making the sale. But more important, prosecutors say, are their allegations that she lied to investigators about the circumstances.

"This criminal case is about lying," U.S. Attorney James Comey said June 4. "That is conduct that will not be tolerated. Miss Stewart is being prosecuted not because of who she is, but what she did."

If the government wins a conviction in the Stewart case and other high-profile prosecutions, it may be emboldened to bring more cases to trial rather than accepting plea bargains, legal analysts said.

"Martha Stewart is truly a bellwether case," Mintz said. "The government either comes out of the case with an enormous victory, having drawn the line in the sand on the issue of lying to the government. On the other hand a loss would be a staggering defeat for the government that could reverberate into other jury rooms in other parts of the country."

Not far from the courthouse in lower Manhattan where Stewart's trial will play out, two former executives of Tyco International Ltd. - L. Dennis Kozlowski and Mark Swartz - went on trial, accused of looting the company of $600 million.

Its juiciest moment was the playing for jurors of a videotape of a 2001 party thrown by Kozlowski in Sardinia. It featured Jimmy Buffett and half-naked male models.

Prosecutors hope the tape - and other details of Kozlowski's lavish lifestyle, like a $6,000 shower curtain and $15,000 umbrella stand - will convince jurors he and Swartz were greedy profiteers. But the two insist they had board approval for their loans and hefty expenses.

On Feb. 2, former WorldCom chief financial officer Scott Sullivan goes to trial on charges he ordered accountants to move operating expenses off the books to make the telecommunications giant appear profitable when it was losing money.

The same day, former HealthSouth chief Richard Scrushy stands trial in Birmingham, Ala., on charges he cooked the books at the health-care company by $2.7 billion and pocketed millions for himself, buying yachts, art and jewels.

Indicted in November, he was the first CEO charged under a new federal law, prompted by the wave of corporate accounting scandals, that requires corporate officials to personally sign off on their financial statements.

And just a week later, Adelphia Communications Corp. founder John Rigas and two of his sons will go to trial. They are accused of raiding corporate accounts for personal business, driving the large cable company into bankruptcy.

For all the tales of corporate greed and scandal that came out of the burst bubble of the late 1990s, surprisingly few major cases, just two, have reached juries so far. The others are pending or have ended in plea bargains.

In Harrisburg, Pa., in October, former Rite Aid Corp. top lawyer Franklin C. Brown was convicted of taking part in a conspiracy to falsely inflate the drugstore chain's earnings and mislead federal investigators.

But that same month an even bigger trial ended in disappointment for the government: The obstruction-of-justice trial of Frank Quattrone, a highly influential 1990s investment banker, ended in a hung jury Oct. 24.

The government believes its case, hinging on an e-mail in which Quattrone urged employees to destroy files, is strong enough for conviction, and will retry him beginning March 22.

Questions remain on whether charges will be brought in 2004 against some of the biggest names from the corporate turmoil that began two years ago with the collapse of Enron.

Former Enron chairman Kenneth Lay and former chief executive Jeffrey Skilling have not been charged criminally. And the government's continuing probe of WorldCom has not produced charges against its ex-CEO Bernard Ebbers.

Legal analysts say that, unless some high-profile cases end in acquittals, they expect prosecutors to continue vigorously pursuing cases, rather than offering plea bargains.

Prosecutors "have far less latitude than they've had in the past in terms of giving extensions, or walking away from cases," said John Potter, a white-collar defense attorney with the law firm Covington and Burling. "Their superiors have passed down the edict that we're in a get-tough-on-crime mode."

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