ImClone Exec InTrouble
ImClone Systems Inc. founder and former chief executive Samuel Waksal has been indicted on expanded charges in an insider trading scandal that has tarnished Martha Stewart and her home fashion empire.
The indictment, filed in federal court in Manhattan on Wednesday, brings new charges of obstruction of justice and bank fraud against Waksal, in addition to previous securities fraud and perjury charges.
Attempts to cut a deal with prosecutors before a Friday deadline apparently broke down. A deal likely would have required him to reveal, in exchange for leniency, whether he provided insider trading tips to family and friends, including Stewart.
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.
"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."
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.
"Now that the CEO of ImClone has been indicted, his close friend Martha probably is not in a good mood today," Smart Money magazine reporter Russell Perlman told CBS Radio News. "If the prosecutors think there's as much evidence as there is for indicting Sam Waksal, then yes, they'll certainly indict her."
"They will never convict her," disagreed Forbes magazine managing editor Dennis Kneale on the CBS News The Early Show. "It is impossible to prove, and more than that, it has been blown out of proportion."
Stewart is a regular contributor to the Early Show but has not made appearances recently since the scandal broke.
Waksal is another matter, said Kneale.
"You'd have to bet that Sam Waksal does a little bit of time in jail in some way," Kneale told Early Show co-host Tom Bergeron. "It's kind of bizarre that he did this at all. I mean, what CEO anywhere does insider trading that is traceable?"
The new charges allege that Waksal defrauded Bank of America Corp. by pledging ImClone securities that he no longer owned to secure loans made to him by the bank. The indictment alleges he supplied a fabricated document in which he had forged the signature of ImClone's general counsel to fool the bank into believing he still owned the securities.
The letter allegedly misled Bank of America to think that it had sufficient security for over $44 million in loans that it made to Waksal and the entities that he controlled.
The indictment also accuses Waksal of trying to obstruct the Securities and Exchange Commission's investigation into insider trading in ImClone shares. The indictment said when he learned that the U.S. Food and Drug Administration would reject ImClone's application to market its highly touted new cancer drug, Erbitux, he tried to sell shares and tipped off others ahead of a public announcement.
The indictment also accuses Waksal of plotting with his family to lie to investigators about the Dec. 27 sell-off.
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 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.
Shares of Martha Stewart Living Omnimedia Inc. slumped more than 8 percent Wednesday following reports that Congress is widening its probe into Stewart's sale of ImClone stock. The stock has taken a beating since news broke in early June that Stewart was linked to the ImClone insider trading scandal.