Stewart Does a U-turn and Pays Her Fine

Martha Stewart, the American lifestyle guru, is to pay the maximum possible fine of $195,000 (£102,000) to settle with the US financial watchdog over an insider trading scandal that landed her in a West Virginia prison for five months in 2004.

In a final humiliation, the securities and exchange commission is to ban the disgraced celebrity homemaker from serving as a company director for five years and will impose strict conditions preventing her from getting involved in the finances of her own business empire, Martha Stewart Living Omnimedia.

The agreed resolution, which is subject to court approval, amounts to a U-turn for Ms Stewart who initially vowed to fight the SEC's civil case, claiming she had done nothing wrong.

It ends a saga that has destroyed the reputation of one of America's best known media stars, split public opinion and left her career in tatters. But it allows the 65-year-old to continue in a creative role below board level at the firm that bears her name. As part of the deal, Ms Stewart's former stockbroker Peter Bacanovic, who illegally passed her a tip, is to be fined $75,000. He has already been barred from working on Wall Street.

Mark Schonfeld, an SEC director, said: "This settlement achieves everything we sought to accomplish in pursuing this case. The combination of monetary relief and future professional restrictions serve both to sanction the defendants' insider trading and to restrict them from future positions of investor trust."

The penalty for Ms Stewart amounts to three times the losses she avoided through her sale in shares of a biotechnology company, ImClone. She offloaded the stock a day before medical regulators gave a red light to a cancer drug developed by ImClone, sending the shares down 16% in December 2001.

Her sale was prompted by a phone call from Mr Bacanovic, who had got wind that ImClone's founder was attempting to sell stock.

Although Ms Stewart consistently denied any impropriety, a friend testified that she had turned to her after receiving the call and remarked: "Isn't it nice to have a broker who tells you these things."

Ms Stewart subsequently altered telephone records to put prosecutors off. Although never charged by criminal authorities with insider dealing, she was found guilty of making false statements and obstructing justice.

Martha Stewart Living Omnimedia, which spans magazines, books and home design and decoration, has struggled to recover. It announced a quarterly loss of $1.17m last week.