Ex-ImClone CEO indicted on trades

Charges against Waskal include bank fraud and perjury; Martha Stewart's image tarnished by alleged insider trading

By Tom Hays | Associated Press

6:54 PM EDT, August 7, 2002

NEW YORK -- A federal grand jury has indicted ImClone Systems Inc. founder and former chief executive Samuel Waksal in an insider trading scandal that has tarnished Martha Stewart and her home fashion empire.

The indictment, filed in federal court in Manhattan, 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 negotiate 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 Stewart.

The 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.

In June, Waksal -- a friend of Stewart's -- was arrested on insider trading charges for allegedly tipping off members of his family to sell ImClone shares. Waksal's lawyers and prosecutors had been trying to negotiate a plea deal before a deadline to indict him.

"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."

Prosecutors accused Waksal of secretly advising his daughter, Aliza, and father, Jack, to sell on Dec. 27 after learning that his biotech company's effort to win approval for Erbitux had been rejected by the Food and Drug Administration. Aliza's stock sale made her $2.5 million. Waksal had tried to sell his shares but brokerage firms refused to process the order.

Investigators also targeted Stewart, CEO of Martha Stewart Living Omnimedia Inc., after learning that she disposed of nearly 4,000 shares on Dec. 27, grossing approximately $230,000. Stewart and Aliza Waksal share the same Merrill Lynch broker, Peter Bacanovic. Congressional investigators probing the ImClone insider scandal are exploring whether Bacanovic could have tipped off Stewart.

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

Meanwhile, shares of Martha Stewart Living Omnimedia Inc. slumped Wednesday following reports that Congress is widening its probe into Martha 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 the decorating maven's name was linked to the ImClone insider trading scandal.

On Tuesday, the U.S. House Energy and Commerce Committee, which is investigating the ImClone trading scandal, said it requested additional documents from Stewart -- including e-mails and records from her business manager.

In a letter to Stewart's lawyer, the committee chairman, Rep. Billy Tauzin, R-La., and Rep. James D. Greenwood, R- Pa., chairman of the subcommittee on oversight and investigations, requested an interview with Stewart to clear up discrepancies between her account of the sale and that of her broker and his assistant.

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.