When the story broke of Perjury charges against a government witness in the Martha Stewart trial,  shares of Ms. Stewart's company were sent soaring on May 21. But gains were short-lived. 

The story of the perjured witness

Larry Stewart, who works for the U.S. Secret Service and is considered one of the nation's top forensic ink specialists, was charged with lying eight times when he testified during the trial about his participation in tests done on the ink used on a worksheet detailing Ms. Stewart's stock portfolio. Mr. Stewart, no relation to Martha Stewart, was also charged with lying about having read a book proposal written by colleagues that discussed a different way to test ink.

The story of Martha Stewart Living Omnimedia Inc

Shares of the company Ms. Stewart founded, Martha Stewart Living Omnimedia Inc., shot up 23% soon after the news broke on Friday, as investors saw a new story for her company -- perhaps her convictions will be canceled? Perhaps she will have a retrial and be declared innocent? Perhaps her firm will return to some of it former glory? In the minds of investors, the stories were obvious and instantaneous. Investors rushed to buy and so the price of the shares shot up.

But prices fell back as more details became available. At 4 p.m. the stock was up 75 cents, or 8.8%, in composite trading on the New York Stock Exchange.

The fading enthusiasm for Martha Stewart Living stock during Friday's session stemmed from a set of new stories, which reflected the realization that the perjury charges aren't likely to undermine her obstruction-of-justice conviction, according to defense lawyers who aren't involved in the case. 

The legal standard for overturning a conviction based on perjured testimony of a witness is high. Defense lawyers would need to show that the jury would have acquitted if it hadn't been for his testimony. If the defense had disputed Mr. Stewart's conclusions, which it didn't, then the defense could have argued that Mr. Stewart's credibility was more relevant to the jury.

Bottom line

The spectacular rise -- and fall -- of the company's share price is yet another illustration of the financial power of corporate storytelling.

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