CELEBRITY NEWS

Tarnish, anyone?

Quick! Get the glue gun! A murky stock trade rips Martha Stewart's rep.

Martha Stewart

(PEOPLE) -- In the Hamptons summer social scene, Martha Stewart is usually as ubiquitous as an air kiss. On the first weekend of summer, however, the doyenne of all things domestic kept a decidedly low profile. When she did appear -- on June 22 at a local antiques sale -- she wore the dyspeptic look of a TV chef whose soufflé was heading south, fast, as cameras whirred.

Although she has flatly denied any impropriety, Stewart, 60, is under scrutiny in an insider trading probe. At issue is her sale of nearly 4,000 shares of ImClone, a biotech company, on Dec. 27, 2001 -- just one day before bad news about the company's promising cancer drug sent the stock plunging. ImClone's founder and former CEO, Dr. Sam Waksal, 54, who dated Stewart's daughter Alexis, 36, and is a very close friend of Stewart mère, has already been charged with tipping off two family members about the impending blow.

MORE STORIES PEOPLE COVER STORY: To Hell and Back: An Oscar winner at 10 and an addict by 20, Tatum O'Neal lived for years in the shadows. Now, angered by ex-husband John McEnroe's new book, she's speaking out and fighting back.  More from PEOPLE.COM    RESOURCES PEOPLE.COM PROFILE: Get to know Martha Stewart    E-MAIL Want more from PEOPLE.COM? Sign up  for free e-mails

Additionally, another member of Stewart's inner circle, her stockbroker Peter Bacanovic, is being investigated in the matter. The timing of the sale, says Ken Johnson, spokesman for the House Committee on Energy and Commerce, which is looking into the affair, "has raised some eyebrows here on Capitol Hill."

Stewart made a small profit on her timely sale of ImClone stock; her net worth, however, declined on paper by more than $100 million on June 24 alone, as some investors, concerned about the ImClone investigation, dumped shares of her company, Martha Stewart Living Omnimedia.

Stewart's defenders claim the scandal is a tempest in a Spode teapot. "There are a lot of people who, frankly, are jealous and don't wish her well," says ad man friend Jerry Della Femina. Still, says George Smith, an analyst with brokerage firm Davenport & Co., "the important thing right now is that the scandal is tainting her image in the minds of investors." And Martha, of all people, understands the value of appearances.