Martha Stewart, imprisoned for lying about a stock trade, thinks the company that bears her name should foot a $3.7 million bill for her legal expenses

Martha Stewart Living Omnimedia Inc. has named board member and former ABC entertainment president Susan Lyne as its new chief executive and president, replacing Sharon Patrick, the multimedia company announced late Thursday.

Lyne, who has served as a director of Martha Stewart Living since June 2004, has had a 25-year career in creative and business positions in the television, publishing and film industries.

“For personal and professional reasons I have decided to leave MSO and pursue other dreams, turning over the leadership of the company to others,” Patrick said in a statement. She had been with the company for 10 years.

Officials at Martha Stewart did not immediately return phone calls.

The management shake-up comes at a time when the New York-based multimedia company is still reeling from the conviction of its namesake founder and former chairman and CEO of lying to investigators about her sale of ImClone Systems Inc. Stewart is currently serving a five-month prison sentence that began Oct. 8. After her release, the domestic diva, who owns 60 percent of the company’s shares, will be serving another five months of house arrest.

Last month, Martha Stewart Living reported that its third-quarter losses widened from a year ago, and forecast a wider-than-expected loss in the fourth quarter as advertising revenues decline. Still the company said it is increasingly optimistic about the company’s prospects for an advertising recovery in 2005.

Lyne most recently was president of ABC Entertainment from January 2002 to May 2004 and had held various executive positions at the network since 1998. She was ousted from ABC in a management shake-up after several years of disappointing ratings in primetime. One of the shows she championed during her last year at ABC was “Desperate Housewives,” which has become the network’s biggest hit this season.

Prior to becoming an executive at ABC, Lyne was executive vice president of Walt Disney Pictures and Television Inc., from 1996 to 1998.

“I am proud to lead MSO during this next phase of the company’s growth,” she said.

Before the management change was announced, shares of MSO rose 5 cents to close at $18.62 on the New York Stock Exchange. The stock gained 90 cents or nearly 5 percent in extended trading following the announcement.

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