Scandal costs Martha Stewart

Martha Stewart Living Omnimedia yesterday disclosed the bruising impact of the bad publicity that has surrounded the company since insider dealing allegations hit its founder last year.

The company fell to a fourth quarter loss of $2m (£1.3m), also hampered by a restructuring of its internet and catalogue divisions.

The group has built a business around the personality of Martha Stewart, a celebrity businesswoman who appears regularly on television giving tips on cookery, gardening and interior design. Operations range from a successful magazine to a range of household goods sold through Kmart.

Ms Stewart's image was sullied last year when she became embroiled in the insider dealing allegations at ImClone Systems, a biotechnology company. Sharon Patrick, the chief operating officer of Martha Stewart Living Omnimedia, yesterday admitted the controversy was likely to continue to dog the business.

"Until this situation is resolved we are likely to continue to face challenges throughout our businesses."

The securities and exchange commission, the US financial regulator, is understood to be waiting for criminal authorities to decide whether they have enough to go to court against Ms Stewart before deciding on its own move.

The SEC could seek a fine or bar her from working for a public company, even if the justice department does not proceed with a trial. Criminal investigators could engage in horse trading, allowing Ms Stewart to avoid prison time if she accepts an onerous SEC penalty.

Ms Stewart has steadfastly denied any wrongdoing.

The scandal has already led to criminal charges being brought against ImClone founder Sam Waksal, who also pleaded guilty on Monday to tax evasion on $15m worth of art. Criminal investigators have been hoping that Mr Waksal would provide information against Ms Stewart. A further two ImClone directors yesterday announced plans to step down from the board.