If convicted, Stewart would face a hefty fine, and could be forced out as chairman and chief executive of Martha Stewart Living Omnimedia Inc. (NYSE:MSO - News), since the SEC would likely seek to bar her from acting as an officer or director of a publicly traded company.

She is already under investigation by the U.S. Justice Department over the stock sales.

Martha Stewart Living has attempted to move other staffers into the limelight since Stewart's legal problems have come to the fore, prominently featuring them in the company's magazine, for example.

"Filing charges doesn't mean she'd necessarily have to step down, but it ratchets up the pressure another notch," said Seth Farber, a partner with law firm Dewey Ballantine, and a former federal prosecutor. "In prosecuting those charges the SEC would seek to bar her from serving as an officer or director."

But separating Stewart from her company would be no simple task, since she created it in her own image. Martha Stewart Living issued a statement last month denying reports it was actively looking for a new CEO.

News that the SEC enforcement unit plans to recommend charges against Stewart was first reported in the Wall Street Journal's online edition.

The move by the SEC comes a week after former ImClone CEO Samuel Waksal, a friend of Stewart, pleaded guilty to some insider trading charges.

Prosecutors are already weighing charges that Stewart dumped ImClone stock after allegedly getting inside information from Waksal that one of its cancer drugs would not get federal approval, and also that she subsequently made false statements about the stock sale.

The SEC informed Stewart of its plans with a so-called Wells Notice, the source said, which gives Stewart 30 days to respond to charges. Any final charges would have to be approved by the entire SEC in Washington.

The charges would likely press to get back cash from Stewart equal to the amount she would have lost had she not sold the ImClone shares, a penalty of up to three times that amount, and a bar on her acting as an officer or director of a company.

Even if Stewart were removed from the company's board and gave up her CEO title, she would still be the company's controlling shareholder.

Martha Stewart Omnimedia declined comment, referring the matter to her personal representative, who was not immediately available for comment. An SEC spokesman had no comment.