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updated 3/16/2004 10:40:48 AM ET 2004-03-16T15:40:48

As a convicted felon, Martha Stewart had little choice but to relinquish her positions as director and chief creative officer at the company she founded. She resigned from both those positions Monday and assumed the newly created role of "Founding Editorial Director." But if she is sentenced to serve prison time on June 17, she may be of little help to Martha Stewart Living Omnimedia, whatever title it gives her.

That's because as a guest of the Bureau of Prisons, she is legally prohibited from "conducting a business," according to bureau policy. The regulation was created with mobsters and drug dealers in mind, according to attorney Joel Bertocchi, a partner at the Chicago-based firm Mayer, Brown, Roe & Maw, who specializes in white-collar criminal law. Bertocchi says the rule applies equally to those trafficking in hand towels and table cloths. "I'm sure they'll take special pains to make it clear to Stewart that they will enforce this rule," he adds.

Martha Stewart Living is already reeling as a result of the Martha mess, and a lack of meaningful communication between its executives and the woman who is the firm's driving force would do even more damage. The company may be able to survive without the Martha Stewart name, but what's left if it also loses the domestic doyenne's vision?

To be sure, the definition of what does and does not constitute conducting a business becomes a bit abstract when you're talking about a company that's based on the lifestyle of a single individual. "At what point does a conversation about how a Thanksgiving Day table should look become a directive?" says Bertocchi. "There is a lot of gray area here; there is room for nuanced conversation. This is not as simple as the drug lords it was meant for."

A Bureau of Prisons spokeswoman says, "Deciphering what is conducting a business is done on a case-by-case basis." Communications via telephone and mail are monitored by prison staff, as are prison visits.

Jack Chin, a professor of criminal justice at the University of Arizona law school, says Stewart can maintain her title at the company and even collect a paycheck as long as she doesn't do anything to earn it while inside.

"If she didn't own stock in the company and was doing it for free, then you could argue that it isn't operating a business by giving advice or sharing creative input," Chin says. "But as the controlling shareholder in the company, I think that any of her thoughts about the business can be construed as conducting business. Put another way, if any controlling shareholder has a particular opinion [about something to do with the business] the board and executives are going to react."

Chin says that the U.S. Supreme Court has yet to weigh in on this issue, which may become more pressing now that ImClone Systems' former Chief Executive Samuel Waksal is in prison and Dennis Kozlowski of Tyco International and Bernard Ebbers of WorldCom face serious charges.

Be that as it may, Chin says that earlier precedents don't bode well for allowing Stewart the flexibility to argue that she is simply consulting by offering her creative input to her firm. He cites a case in the early 1990s in which an incarcerated author was disciplined for writing an article for The San Francisco Chronicle. "So it seems that the Bureau of Prisons could interpret almost any kind work for pay as operating a business," says Chin.

Should she get shipped off, Martha will want to choose her words carefully when communicating with the outside world. If the Bureau of Prisons finds she is violating its rules, she doesn't get a lawyer or a chance to plead her case, says Chin: "They have the authority to move her to another part of the prison, confine her to her cell or even take away some of the limited good-time credits which remain available to prisoners who follow the rules."

© 2012 Forbes.com

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