Stewart resigns as company head

Ms Stewart had hoped to avoid criminal charges

Martha Stewart, the US lifestyle guru and entrepreneur, has resigned as chairman and chief executive officer of her company, hours after being charged with securities fraud and obstruction of justice.

Ms Stewart said in a brief statement that she was resigning because "it is the right thing to do", adding that it would be effective immediately.

She will remain on the company's board of directors and has been named to the position of chief creative officer.

The charges against her, filed in Manhattan Federal Court in New York City, follow a year-long investigation by US prosecutors into Ms Stewart's sale of shares in biotech firm ImClone Systems in late December 2001.

She is also being sued separately by the Securities and Exchange Commission (SEC), the US stock market watchdog, for "illegal insider trading".

Ms Stewart has pleaded not guilty to the charges, which her lawyer says are "baseless".

'Tip-off'

Ms Stewart sold the ImClone shares the day before regulators rejected the company's application to market the cancer drug Erbitux, causing the company's share price to fall sharply.

The SEC alleged that Ms Stewart sold the shares after her stockbroker told her that former ImClone chief executive Sam Waksal and members of his family were selling their own ImClone stock.

"It is fundamentally unfair for someone to have an edge on the market just because she has a stockbroker who is willing to break the rules and give her an illegal tip," said Stephen M Cutler, the SEC's Director of Enforcement.

Mr Waksal, a friend of Ms Stewart's, last year pleaded guilty to various fraud charges stemming from his role in the sale of ImClone stock.

It was alleged that Mr Waksal had advance warning in December 2001 that ImClone's application to market Erbitux would be rejected, and tipped off relatives and associates who held the company's shares.

Peter Bacanovic, the former Merrill Lynch stockbroker who acted for Ms Stewart, was also charged with obstruction of justice and perjury on Wednesday.

He pleaded not guilty to all charges.

Burden of proof

Ms Stewart has previously claimed that she had instructed her stockbroker to sell her ImClone shares as soon as their price fell below a certain threshold.

The criminal charges against Mr Bacanovic and Ms Stewart stem from an alleged attempt to cover up the events leading up to Ms Stewart's sale of ImClone shares.

There had been speculation that Ms Stewart would also face criminal insider trading charges. It is thought that prosecutors decided against this because insider trading would have been too difficult to prove in a criminal case.

The burden of proof in civil cases, such as the one brought against Ms Stewart by the SEC, is lower.

Reports that Ms Stewart was about to face criminal charges began to circulate earlier this week, wiping about 20% off the market value of her company, Martha Stewart Living Omnimedia.

Shares in the firm had already lost half their value since the scandal first broke last year.

However, they recouped some of their losses on Wednesday despite news of Ms Stewart's indictment, settling 5% higher at $10.