Shareholders Welcome Stewart Judge's Decision

For shareholders of Martha Stewart's (search) company, seeing the government's most serious charge against its founder tossed out Friday was, to use a favorite phrase of the stylish defendant, "a good thing."

Shares of the company, which have sagged amid Stewart's legal woes, jumped after a judge threw out the government's securities fraud charge, saying prosecutors had not shown enough evidence that Martha Stewart misled investors in her own company in an attempt to prop up the share price.

Martha Stewart Living Omnimedia Inc. (MSO) shares rose more than 15 percent before trimming some of the gains. Shares were up $1.21, or 9.2 percent, at $14.31, in afternoon trade on the New York Stock Exchange.

The securities fraud charge, dismissed by U.S. District Judge Miriam Goldman Cedarbaum (search), was the most serious count facing the home decorating icon and the only one related to her conduct as CEO of the media and merchandising company she built out of a catering business.

"This was the securities fraud charge that was leveled against Martha with the accusation that, in effect, she engaged in a cover-up and a lack of disclosure to her shareholders," said Anthony Sabino, a professor of business law at St. John's University.

But he added that while the judge's decision to drop the charge based on lack of evidence "is a setback for the prosecution, it is not over for Martha Stewart at all. She still faces four very serious charges centering around obstruction of justice."

New York-based Martha Stewart Living has not been accused of any crimes. Stewart stepped down from her role as CEO hours after her June 2003 indictment, but remains a board member and chief creative officer.

The company's business has suffered during its founder's legal travails, with advertising at the flagship Martha Stewart Living magazine (search) down sharply. The company recently slashed the circulation it guarantees to advertisers at the magazine in light of readership declines.

The securities fraud charge was based on public statements from Stewart in June 2002 after the media began reporting probes into her personal sale of drugmaker ImClone Systems Inc. (IMCL) shares.

In the 2002 statements, Stewart described a preexisting agreement to sell her ImClone stock, insisted the transaction was proper and denied trading on insider information.