Source- SEC to recommend civil charges against Stewart

NEW YORK -- Securities and Exchange Commission attorneys have told Martha Stewart they are ready to file civil securities fraud charges against her for her alleged involvement in an insider trading scandal, a source close to the investigation said Tuesday.

The SEC recently gave the home decor entrepreneur a formal notice of its intent to file civil charges, the source told The Associated Press, speaking on condition of anonymity.

Stewart's attorneys reportedly have filed a response with the SEC.

In most cases, such a notice leads to filing of a civil lawsuit by the SEC.

Potentially devastating

The possibility of civil charges is a potentially devastating scenario for Stewart, who is accused of selling shares of ImClone Systems after getting tipped off about negative news surrounding one of its promising new cancer drugs.

The ImClone case is also being investigated by the U.S. Attorney's Office. The SEC move does not necessarily mean criminal charges will be filed, though probers at the two agencies often work in tandem.

Stewart has denied any wrongdoing and has not been charged, but the scandal has fractured her multibillion-dollar empire. Her company's stock has tumbled 60 percent since she was linked to the scandal, and Stewart resigned earlier this month from the board of the New York Stock Exchange.

Stewart's attorneys referred calls to her public relations representative, Allyn Magrino, who declined to comment on the development. Martha Stewart Living Omnimedia Inc., where Stewart is chief executive and chairman, also declined to comment, as did an SEC spokesman.

Shares of the company were up 5 cents at $7.55 in late morning trading Tuesday.

Stewart is already under investigation by the Justice Department, which is probing whether she lied to lawmakers about her sale of ImClone shares.

She sold nearly 4,000 shares of ImClone on Dec. 27 -- one day before the Food and Drug Administration announced it would not review the biotechnology company's cancer drug, Erbitux. ImClone's stock subsequently plummeted.

Stewart has maintained that she and her broker Peter Bacanovic had a standing order to sell the shares if the stock dropped below $60.

Stewart is friends with Sam Waksal, founder and former chief executive of ImClone, who pleaded guilty last week to several counts of bank fraud, securities fraud, conspiracy to obstruct justice and perjury.

Waksal did not implicate Stewart, and his plea was not part of an agreement to cooperate with prosecutors -- rare in a criminal plea.