Martha Stewart May Face Criminal Indictment

Martha Stewart, the domestic taste-maker who built a media and design empire, is likely to be indicted in an insider-trading scandal that grew from her close relationship with the disgraced head of biotech firm ImClone Systems Inc. (search).

Federal prosecutors are expected to seek a grand jury indictment against Stewart in New York Wednesday on a variety of charges, including securities fraud and obstruction of justice, sources close to the case told Fox News.

If indicted, Stewart, the founder and chief executive of Martha Stewart Living Omnimedia Inc. (MSO), will plead innocent and go to trial, her lawyer said.

The U.S. Attorney's Office for the Southern District of New York intends to seek a grand jury indictment against Stewart, the company said in a press release. It was also informed that a civil complaint by the Securities and Exchange Commission (search) is expected.

Still, there may be a chance for last-minute plea negotiations to work out, sources told Fox News. Negotiations over the weekend between lawyers for Stewart and Justice Department officials failed, according to those sources.

Stewart's chief attorney, Robert Morvillo, issued a brief statement saying: "If Martha Stewart is indicted, she intends to declare her innocence and proceed to trial."

Business news network CNBC reported that Stewart, 61, was likely to resign as chairman and CEO of the company following any indictment. But in a videotaped message played at the company's annual meeting Tuesday, Stewart said she would not resign from the company, according to Carolyn Stack, a shareholder who attended the meeting. It was not clear when Stewart's message was taped.

The SEC, the U.S. Attorney's Office in Manhattan, and the Department of Justice declined to comment.

The latest development in the yearlong probe dragged the company's stock down as much as 20 percent as investors were gathering for the company's annual meeting in New York. The shares ended down $1.68, or 15 percent, at $9.52 on Tuesday.

Even before trading opened Tuesday, company shares had plunged 52 percent since their peak of $23.15 in July 2001. They reached a low of $5.26 a share in early October 2002 shortly after Stewart resigned from the New York Stock Exchange (search) 's board of directors and after an assistant to her stockbroker agreed to help prosecutors investigating Stewart's sale of ImClone stock.

Stewart's name and image is tied to an empire of products from Martha Stewart Everyday (search) merchandise, exclusive to Kmart, to magazines, books and TV shows. The company has struggled to move forward with Everyday Food, a new magazine tested in January that was the company's first without Stewart's name, as well as a Martha Stewart Signature furniture collection.

The developments were viewed by analysts as ending all remaining hope that Stewart could dodge deeper entanglement in the matter and mend the costly damage inflicted on her magazine, television and merchandising businesses.

"The best-case scenario — that the investigations would conclude without resulting in formal charges — is apparently no longer a possible outcome," Alissa Goldwasser, an analyst with William Blair & Co, said in a note.

Stewart is under investigation for her December 2001 sale of ImClone shares just before the biotechnology firm said federal regulators had turned down a review of an experimental cancer drug.

A federal law enforcement source said the investigation has focused on whether Stewart engaged in insider trading and whether she lied to congressional investigators.

Stewart, who was a stockbroker before establishing her own catering business, and ImClone's co-founder, Sam Waksal (search), were close friends, often seen and photographed together at events in New York. Investigators have been looking into whether she was among a group of friends and family members who Waksal is accused of having tipped about the U.S. Food and Drug Administration's plans to reject the company's experimental cancer treatment.

Waksal, 55, was removed as head of ImClone a year ago and last fall pleaded guilty to six of the 13 charges in the case. He will be sentenced next week for insider trading and for tax evasion, which grew from a separate investigation into high-dollar art purchases.

The company "and its board of directors have been planning for a number of possible contingencies, are evaluating the current situation and will take action as appropriate," Martha Stewart Living Omnimedia said in a release.

In recent days, ImClone shares have risen sharply after the company disclosed positive results from new clinical trials of Erbitux, reaching their highest level since January 2002.

ImClone shares closed on Tuesday at $33.55, after trading below $20 as recently as May 23.

Fox News Channel's Anna Stolley, Reuters and The Associated Press contributed to this report.