NEW YORK (CNN/Money) - Shares of Martha Stewart's namesake company rose Friday but still ended near their lows for the year as investors remain jittery over her links to troubled ImClone Systems.

Martha Stewart Living Omnimedia Inc. (MSO: Research, Estimates), which sells cookbooks, housekeeping magazines and other items, slipped as low as $13.40 before ending up 65 cents at $15.45. Shares hit their low the year, $14.62, on Jan. 15.

The latest setback came from Merrill Lynch, which downgraded Martha Stewart shares to "neutral" from "buy" due to "ongoing scrutiny related to her December sale of almost 4,000 ImClone shares.

Stewart has denied any improper activity regarding ImClone stock. But reports Friday said Federal prosecutors are looking into whether the home decor entrepreneur had inside information when she sold shares ofImClone (IMCL: Research, Estimates), which tumbled in late December after federal regulators handed ImClone's only drug a major setback.

"We have no knowledge of whether Ms. Stewart committed any improprieties," Karl Choi, who covers Martha Stewart for Merrill, told clients. "However, the continued scrutiny, especially in the current environment with increased emphasis on corporate governance, is likely to cause extra volatility in MSO shares, until more clarity emerges."

The latest losses underscore the hurdles facing a company so closely associated with its founder. It also comes during a year when Kmart, which has a distribution agreement with the company, went bankrupt.

Merrill's Choi said the company's business appears in good shape. But "as Ms. Stewart is the CEO of MSO, the ongoing scrutiny may cause distraction at the very top of the company," he wrote. "MSO also is closely associated with Ms. Stewart's image as a personality."

The Wall Street Journal, citing a person close to the case, said investigators are actively probing whether Stewart had any contact with former ImClone CEO Samuel Waksal or anyone else who could have tipped her that the Food and Drug Administration was about to reject Erbitux, ImClone's experimental cancer drug.

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Stewart sold about 3,900 of the shares Dec. 27, a day before the company said the FDA had refused to review the application for Erbitux.

In her statement Wednesday -- the same day Waksal was arrested and charged with tipping off family members about the impending Erbitux rejection, Stewart said she had tried to sell the stock since October.

Stewart said she had reached an agreement with her broker to sell her remaining shares of ImClone if the stock dropped below $60 a share. How and when that agreement was put into effect is critical in determining whether inside information about the FDA rejection may have affected her decision to sell, the Journal said.

The newspaper said a Stewart spokeswoman declined to comment Thursday, beyond the statement issued Wednesday.

Federal prosecutors Wednesday charged Waksal with conspiracy, securities fraud and perjury involving an alleged insider trading scheme in ImClone shares. The Securities and Exchange Commission filed a related civil complaint. Waksal has denied the allegations and took the 5th Thursday, declining to testify before the congressional panel probing the rejection of Erbitux.

Waksal's brother, Harlan, the current ImClone CEO, told lawmakers that the company "let patients down" by submitting a flawed application to the government for approval of the drug.

A document released by the congressional panel indicates that ImClone and Bristol-Myers Squibb, which were working together on Erbitux, had discussed being deliberately vague about what they disclosed to the public regarding the FDA's decision to reject the drug, the Journal reported.

Stewart's Wednesday press release said she did not speak to Waksal regarding the sale and did not have any nonpublic information on ImClone when she sold 3,928 shares at $58 each, or $227,824.

"In placing my trade I had no improper information," Stewart said. "My transaction was entirely lawful."

But the scrutiny has been rising. In addition to the Journal, the New York Post Friday ran a front page story on Stewart while the New York Times had a piece inside its business section.

But Stewart, in her latest public comment on the matter, distanced herself from the ex-ImClone CEO, who she said she called after selling her shares.

"I did not reach Dr. Waksal and he did not return my call," Stewart said Wednesday.