Barring Stewart from the boardroom is the real threat in the SEC's legal action, so if she can settle with the agency without a ban, "it may be worth her while," said Eugene Goldman, a former SEC enforcement attorney, now a partner with the Washington law firm McDermott, Will & Emery who co-chairs its SEC defense group.

"With the criminal case resolved, Martha Stewart will undoubtedly want to settle with the SEC," predicts Stephen Crimmins, a former SEC litigator, now a partner with the Washington law firm Pepper Hamilton.

Crimmins expects the SEC will insist that Stewart be barred from the boardroom, but may allow her to act as an executive under certain restrictions.

Banning executives from the boardroom is getting easier. In 2002, Congress lowered the threshold, requiring the SEC to demonstrate that an executive is "unfit" to head a company, rather than showing he or she is "substantially unfit" for the job.

The SEC claims Stewart was tipped off to inside information through her Merrill Lynch & Co. (MER) broker, Peter Bacanovic, whose clients included ImClone Chief Executive Samuel Waksal. Bacanovic allegedly alerted Stewart that Waksal and family members were selling their shares. Waksal sold after learning the Food and Drug Administration would reject licensing Erbitux, an ImClone drug. The bad news was publicly announced a day after Stewart sold her shares.

If the case goes to trial, the fact that Stewart was tipped indirectly through her broker could present problems for the SEC, attorneys say.

"I know of no other insider trading case based on a broker telling a customer what another customer is doing," said Goldman. He said the SEC would have to prove Stewart "knew that her stock broker was breaching his fiduciary duty to his other customers" by passing along the tip.

But, "Martha Stewart, earlier in her career, was a stockbroker, so she's going to have a hard time claiming she didn't know Bacanovic was doing something wrong," said Albert. He figures a settlement is best for all parties, especially if the SEC offers a two- or three-year bar, rather than a permanent ban.

The SEC rarely bars executives based on insider trading, and might find it hard to argue for it in Stewart's case since she was trading stock in another company rather than her own, lawyers say.

Alternatively, if Stewart's criminal conviction is upheld, the SEC could seek to bar her based on that, rather than on insider trading. That approach would require the SEC to hold off awhile longer as Stewart is appealing based on allegations of perjury by a key witness for the prosecution.

"The charge of perjury of an important government witness is an extraordinary occurrence," said Charna Sherman, a partner with the law firm Squire Sanders & Dempsey, in Cleveland. She thinks Stewart's lawyers can make a strong case to overturn her criminal conviction and to forestall any action on the SEC's civil suit in the meantime.

While Sherman figures Stewart should continue her appeal, she suggested she temper her fighting spirit while the case is still before the court.

"She seemed rather defiant today," even uttering "fighting words," said Sherman. "There isn't a great sense of contrition or concern."

-By Judith Burns, Dow Jones Newswires; 202-862-6692; judith.burns@dowjones.com