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SEC deadline winds down for Martha Stewart

/ Source: The Associated Press

Martha Stewart, who completed a five-month prison sentence a year ago for lying about her sale of ImClone stock, is now facing another legal hurdle.

The home diva faced a midnight EDT deadline Thursday to respond to a civil suit filed by the Securities and Exchange Commission that charges she illegally used nonpublic information to sell 3,928 shares of ImClone Systems Inc. back in December 2001.

Fighting the charges offers Stewart, founder of Martha Stewart Living Omnimedia Inc., the chance to reclaim her CEO and chairman titles. But another public trial could deal a blow to the company and reverse the turnaround that it has made so far over the last year.

Legal experts believe it might be in Stewart’s interest to settle the charges since she has still been able to wield considerable influence over her multimedia empire.

“One would think she would want to do anything to reach a resolution,” said Gregory Wallance, partner at Kaye Scholer LLP who was a former federal prosecutor. “For most public figures in this position, the general objective is to get the matter behind them.”

Gregory Arthur Markel of Cadwalader Wickersham & Taft LLP, part of the legal team representing Stewart, did not immediately return calls made by The Associated Press.

The June 2003 SEC complaint — filed the same day Stewart was indicted — was stayed until criminal proceedings were completed. With Stewart’s criminal appeals recently exhausted, the SEC lifted the stay last month.

“We took these charges seriously then, as we do now,” said Bruce Karpati, assistant director of enforcement at the SEC. “Now that the judge has permitted the case to go forward, we plan to vigorously prosecute this case of illegal insider trading.”

The original SEC complaint seeks to bar Stewart from working as a director and to limit her responsibilities as an officer of a public company. Stewart resigned as chair and CEO in June 2003 after being indicted.

Stewart was convicted in March 2004 for lying to federal prosecutors about selling ImClone shares a day before the Food and Drug Administration went public with its decision to decline reviewing ImClone’s application for its cancer drug Erbitux. The FDA announcement sent shares plummeting.

Stewart has maintained her innocence, saying she had an agreement with her broker Peter Bacanovic to sell ImClone shares when it fell to $60 per share. She resigned from the board a week after she was convicted, maintaining her title as founder.

According to legal experts, if Stewart doesn’t settle the charges with the SEC, she can maintain her story, or even invoke the Fifth Amendment, refusing to testify.

If Stewart loses the SEC case, she faces up to three times the losses avoided through her trades of ImClone, the SEC said.

“Although the SEC’s complaint seeks to bar Ms. Stewart from being the officer or director of a public company, we are confident that nothing about this civil litigation will prevent Martha from continuing to do all the wonderfully creative and inspirational things she currently does for the company and its customers,” said Elizabeth Estroff, a spokeswoman at Martha Stewart Living.

Still, the latest legal hurdle comes after Stewart has made a successful comeback at her multimedia empire. Stewart, who also served five months of home confinement, has reclaimed her status on TV and on radio, with “Martha,” the company’s newly syndicated daily show and the new Martha Stewart Living Radio channel on Sirius Satellite Radio Inc.

And advertisers, who fled amid her legal woes, are returning, particularly to the company’s flagship magazine, Martha Stewart Living. That has resulted in overall strong revenue increases and improvements in the bottom line.

For the first quarter, Martha Stewart Living reported a narrower loss on a 60 percent revenue gain.

The company, under the stewardship of Susan Lyne, president and CEO, has branched out with new projects that don’t bear Stewart’s name, such as a new lifestyle magazine for women called Blueprint, which hit newsstands this month.