An indictment could come as early as this week, a person briefed on the investigation said.
- Martha Stewart-ImClone
It is unclear whether Stewart, a former stockbroker who built a fortune as a symbol of tasteful living, will continue in her roles at the company, where she is also the biggest shareholder. The company and its board "have been planning for a number of possible contingencies, are evaluating the current situation and will take action as appropriate," the statement said.
A civil complaint from the Securities and Exchange Commission could eventually cost Stewart hefty fines and her position as CEO of the media company.
If Stewart is indicted and chooses to settle the charges, she could be required to step down as part of a settlement.
Stewart's chief attorney, Robert Morvillo, issued a brief statement Tuesday that said, "If Martha Stewart is indicted, she intends to declare her innocence and proceed to trial."
Morvillo said later that prosecutors haven't specified what charges they intend to file. The "realm of possibility" includes stock fraud, obstruction of justice and making false statements, he said.
He declined to comment on his negotiations with U.S. Attorney James B. Comey's office and the Justice Department.
A spokeswoman for Martha Stewart Living Omnimedia said there would be no additional comment about the case. A spokesman for the U.S. attorney's office in Manhattan, which is conducting the criminal investigation, also would not comment. Stewart's personal spokeswoman did not immediately return calls made to her office.
A source close to the case, speaking on condition of anonymity, said Stewart's defense team had attempted to get Justice Department officials to intervene with federal prosecutors, but those efforts went nowhere.
The company's announcement, made before the stock market opened on a day when shareholders of Martha Stewart Living Omnimedia were gathering in Manhattan for the annual meeting, indicated that efforts by Stewart's lawyers to persuade investigators not to charge her with any crime had come to an end.
"They probably gave her the courtesy of a heads-up so she could get the news out herself," said Marvin Pickholz, a lawyer who represents Douglas Faneuil, the 27-year-old assistant stock broker whose testimony undermined Stewart's explanation for her ImClone trade. "She's well known. They will accord her the ability to address this with some dignity."
Stewart did not attend the shareholders' meeting, which was closed to the press. In a brief video, she apologized for not attending but did not address the investigation.
Stewart can be terminated if she is convicted of a felony, according to the company's most recent proxy. Her possible successors include Sharon Patrick, the company's president, who addressed reporters and shareholders Tuesday. She called the mood at the meeting "very supportive," although several shareholders said in interviews they were disappointed that Stewart had not appeared.
The scandals had affected earnings at the company, which have been slumping. Revenue in the first quarter of the year dropped 15 percent from the same period a year earlier.
Stewart told The New Yorker magazine in January that she has lost about $400 million because of the company's declining value, legal fees and lost business opportunities.
An indictment is precisely the fate Stewart has been trying to avoid since June 12, the day her name became publicly linked with the unfolding insider-trading scandal at ImClone.
ImClone's founder and chief executive, Samuel D. Waksal, was arrested that morning, and later pleaded guilty to six charges stemming from hefty sales of the company's stock made in the final days of 2001. The sales occurred just before the company disclosed that the Food and Drug Administration had rejected its initial application for approval of a promising cancer drug called Erbitux.
Waksal has admitted that he tipped off his daughter Aliza to sell ImClone stock before it plummeted on the bad news. But he has not implicated Stewart and his plea was not part of a cooperation agreement with prosecutors.
Stewart, who had just been elected a director of the New York Stock Exchange and was busily promoting her company's growth prospects, resolutely defended her decision to sell nearly 4,000 ImClone shares on the afternoon of Dec. 27.
She contends that she and her Merrill Lynch broker, Peter Bacanovic, had agreed earlier to sell if the share price fell below $60. The stock did slip below that point Dec. 27, and her shares were sold at about $58 each.
Stewart acknowledged last summer that she was under government investigation. Since then, her company's share price has been battered, falling from about $19 a share to a low of $5.47 in October.
Although it erased some of those losses in recent weeks, it took a beating again Tuesday after the company's statement on the possible indictment, dropping $1.68, or 15 percent, to close at $9.52 on the New York Stock Exchange.
Stewart built her reputation as an authority on cooking and entertaining with the 1982 publication of "Entertaining," a best-selling coffee-table book featuring recipes and photos of her renovated farmhouse in Westport, Conn.
She now has more than 40 books to her name, on topics ranging from hors d'oeuvres to household organization. Her company publishes five magazines, including Martha Stewart Living, which has a 2 million circulation. She sells house wares through retailers such as Kmart Corp. Her network TV show airs weekday mornings on CBS.
The New York Times, Associated Press and Bloomberg News contributed to this article.