Martha Stewart's Image, Share Price Hammered

Updated from 12:43 p.m. EDT

For Martha Stewart, ImClone Systems(IMCL Quote) is definitely not a good thing.

Shares of Martha Stewart Living Omnimedia(MSO Quote) fell $2.10, or 12%, to $15 Wednesday because of the style doyenne's personal ties to former ImClone CEO Sam Waksal, who was arrested earlier on insider trading charges.

Stewart, a longtime Waksal friend, sold about 3,000 shares of ImClone stock in the days before an application for the company's experimental cancer drug, Erbitux, was rejected by the Food and Drug Administration on Dec. 28.

The criminal complaint issued against Waksal Wednesday alleges that he received advanced notice of the FDA decision, and used that nonpublic information to try to unload shares and help others do the same to avoid losses when ImClone eventually fell. Waksal was charged with eight counts of insider trading and one count of perjury. The Securities and Exchange Commission filed similar insider trading charges against Waksal Wednesday, saying his tippees were relatives.

Stewart has denied any wrongdoing, insisting she did not receive any advance knowledge from Waksal about the decision on Erbitux. Instead, her sale of ImClone stock on Dec. 26 or Dec. 27 was part of a predetermined plan to sell if shares fell below $60, according to media reports last week that quoted Stewart's attorney.

After the close of trading Wednesday, Stewart issued a statement. "I did not speak to Dr. Samuel Waksal regarding my sale, and did not have any nonpublic information regarding ImClone when I sold my Imclone shares," she said.

Investors in Martha Stewart's home design and media empire have been shaken, nonetheless, because of her close ties to Waksal. Of course, Stewart's personal image is also what drives the fortunes of Martha Stewart Living, so if she gets dragged into the Waksal scandal, her company, and its investors, will suffer right along with her.

The company has lost 21% of its value since June 7, when news of Stewart's sale of ImClone stock was first reported.

The Waksal cloud obscured what should have been a good day for Martha Stewart Living. Company executives, including Martha herself, gave a very upbeat presentation Wednesday afternoon at a U.S. Bancorp Piper Jaffray conference.