The insider trading case against Paul Thayer is stunning evidence of what government regulators are up against in their drive to stop corporate executives from ripping off corporations and corrupting the stock market.

When Thayer resigned as deputy secretary of Defense 15 months ago, he denounced the charges brought by the Securities and Exchange Commission as "utterly without merit" and predicted that he would "ultimately be exonerated."

But as the facts unfold in three civil and criminal proceedings, the only problem with the original SEC complaint turns out to be that it did not go far enough in detailing Thayer's misdeeds. Rather than exoneration, Thayer is facing jail for obstruction of justice.

If he doesn't serve time, no one accused of insider trading should ever go to jail. Of course, almost no one goes to jail for insider trading now. It is the obstruction charge that could put Thayer behind bars, not his multimillion-dollar white collar crime.

Federal prosecutors are urging U.S. District Judge Charles R. Richey to throw the book at Thayer for what may be Washington's worst coverup since Watergate.

Thayer lied to the FBI, the SEC and a grand jury, betrayed three corporations with which he was associated, made up phoney documents, urged his friends to help him cover his tracks and commit perjury, and used front men to hide his illegal investments, investigators said in recommending a prison sentence.

An investigation that could have been cleaned up in a couple of months took more than a year and required 3,000 hours of work as the result of Thayer's coverup. When investigators finally got the goods on him in March, Thayer immediately copped a plea on the obstruction charge, which carries a maximum penalty of five years imprisonment and a $5,000 fine.

He comes up for sentencing in federal court here in a few days but in the meantime faces other legal problems that could prove far more costly than a $5,000 fine -- though far more convenient than incarceration. The SEC is negotiating to make Thayer and his associates repay some $3 million in profits they made on illegal investments. Anheuser-Busch Cos. Inc. on Friday sued Thayer and the others for $250 million to recoup money they allegedly made on insider deals while Thayer was on the beer company's board of directors.

The $5,000 fine is pocket money for Thayer, who listed his net worth at $10 million when he was named to the second highest post in the Defense Department. "In that position," U.S. Attorney Joseph E. diGenova told Judge Richey, "he was charged with responsibility for the defense and safety of the nation, but he tried to sabotage the legal processes of another governmental agency."

Thayer's illegal investments began when he was chairman of LTV Corp., the big Dallas defense contractor. Considering recent disclosures about profiteering by Pentagon suppliers, it should not be surprising to learn what other borderline business practices these same outfits are involved in.

Usually it's some middle-management type who cannot resist the urge to profit from corporate secrets, but Thayer was the top guy at LTV and a board member of Anheuser-Busch and Allied Corp.

Yet when he saw an opportunity to make a quick buck on inside information, Thayer took the money. Not once, but five times.

When his own company made a $45-a-share bid for Grumman Corp. in September 1981, Thayer bought Grumman stock first at $26. When he found out a few weeks later that LTV's profits would be bigger than expected and would push up the price of the stock, he bought again.

He did the same thing when he learned at a June 1982 board meeting that Anheuser-Busch would bid for Campbell Taggart Inc., a Dallas baking company. The heavy buying by Thayer and his cohorts pushed up the price of Campbell Taggart from $24.37 1/2 to $29.

He did it again when Allied, in partnership with the Continental Group, made an offer for Supron Energy Corp. in April 1982. And again when Allied decided in September 1982 to rescue Martin Marietta Corp. from an unfriendly takeover by Bendix Corp.

Thayer not only invested for himself, he tipped his girl friend, his stock broker, his doctor and other friends in Dallas. Some of them told their friends, one of whom was described by the U.S. attorney as a "convicted bookmaker and ranked backgammon player." Soon backgammon hustlers all over the country were investing on Thayer's tips, prosecutors say. The circle spread as far as Atlanta, where New York Jets captain-turned-stockbroker Bill Mathis is accused of acting on leaks from Thayer.

The most easily identifiable economic damage done by Thayer appears to have been inflicted on Anheuser-Busch, which claims it had to pay an extra $80 million for Campbell Taggart because Thayer's leaks pushed up the price of the stock.

The damage done by Thayer to the other companies, the stock market, the Reagan Administration and the nation itself are incalculable. When investors see illegal activity by corporate executives, it has to shake their confidence in the company. When investors see insiders cleaning up because of their position, confidence in the markets suffers. When citizens see White House appointees engaged in massive fraud and coverup, faith in our leadership is strained. And well it should be.

Thayer and his cronies in these cases were privileged members of society, people who were able to make themselves rich thanks to our free enterprise system, federal prosecutors noted in recommending jail. "Their motives for these crimes can only be described in terms of greed and arrogance. . . . Their crimes are even more reprehensible because of their positions in society. A clear message should be sent to the public that the courts intend to deal seriously with these types of crimes."

Lock him up.