ImClone’s Waksal faces more trading charges

Tom Hays

Thursday, Aug. 8, 2002 | 9:48 a.m.

NEW YORK -- ImClone Systems Inc. founder and chief executive Samuel Waksal was indicted on expanded insider trading charges, signalling prosecutors' apparent failure to negotiate a plea deal.

The indictment, filed in federal court in Manhattan Wednesday, brings new charges of obstruction of justice and bank fraud against Waksal in addition to previous securities fraud and perjury charges.

Prosecutors had sought to arrange a plea deal with Waksal before a Friday deadline to indict him. A deal likely would have required him to reveal, in exchange for leniency, whether he provided insider trading tips to family and friends, including decorating maven Martha Stewart.

"This is a painful chapter in Dr. Waksal's life, but he continues to believe in ImClone and Erbitux as holding out real hope for millions of cancer patients," Waksal attorney Mark Pomerantz said in a statement. "Like all Americans, he is presumed to be innocent, and he will respond to these charges as required."

Waksal, 54, was arrested in June on charges he secretly advised family members -- widely reported to be his daughter, Aliza, and father, Jack -- to sell their ImClone stock on Dec. 27 after learning that his biotech company's highly touted cancer drug, Erbitux, had been rejected by the Food and Drug Administration.

Investigators also targeted Stewart, CEO of Martha Stewart Living Omnimedia Inc., after learning that she disposed of nearly 4,000 shares on Dec. 27. Stewart has denied any wrongdoing.

The new bank fraud count -- which carries a maximum sentence of 30 years in prison -- alleges Waksal defrauded Bank of America between April 1999 and January by securing $44 million in loans with ImClone stock he no longer owned.

The obstruction count accuses the defendant of ordering the destruction of ImClone computer files containing phone messages and of records of his offshore accounts at banks in Switzerland and the Netherlands. Prosecutors say the files and records could have revealed the identities of his insider trading partners and where he may have hidden illicit gains.

The indictment also accuses Waksal of plotting with his family to lie to investigators about their conversations before the Dec. 27 sell-off and their reasons for it.

Stewart maintains she had an order to sell her ImClone stock when it went below $60. But doubt has been cast on that assertion because she and her Merrill Lynch broker, Peter Bacanovic, differ on when the order was placed.

Bacanovic's assistant, Douglas Faneuil, originally said there was such an order but has since changed his story.

The New York Times and Wall Street Journal reported this week that Faneuil told investigators that Bacanovic ordered him to call Stewart to advise her to sell her shares because Waksal and members of his family were dumping their shares.

Phone records obtained by the U.S. House Energy and Commerce Committee, which is conducting its own investigation, show no such call, a spokesman for the panel said. However, there is a record of Bacanovic's calling Stewart that afternoon, shortly after which she sold her shares.

Meanwhile, shares of Martha Stewart Living Omnimedia Inc. slumped Wednesday following reports that Congress is widening its probe into Stewart's sale of ImClone stock in December. Shares fell 8.2 percent, or 67 cents a share, to close at $7.50 on the New York Stock Exchange. The stock has taken a beating since news broke in early June that Stewart was linked to the ImClone insider trading scandal.