Former ImClone CEO Arrested
Jun. 12, 2002
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NEW YORK (AP) _ The former CEO of ImClone Systems was arrested Wednesday and charged with conspiracy to commit securities fraud for allegedly tipping off two people to sell stock in the biotech company the day before federal regulators rejected its application for a cancer drug.
FBI agents arrested Samuel Waksal at his home at 6:30 a.m., said Waksal's spokesman, Scott Tagliarino. Justice Department spokesman Bryan Sierra confirmed Waksal's arrest. Securities regulators also brought a civil case against Waksal on Wednesday.
According to the complaint unsealed Wednesday, Waksal is accused of tipping off an unidentified person in Florida to sell 50,000 shares of ImClone stock on Dec. 27, one day before the Food and Drug Administration told the company it would not consider its application for Erbitux, a highly touted cancer drug. Waksal also is charged with allegedly tipping off a second person that same day who later sold nearly 40,000 shares.
Waksal, who was replaced as ImClone CEO by his brother, Harlan, on May 22, is also charged with perjury for allegedly lying to the Securities and Exchange Commission about conversations he had with the people who received the tips.
Before the rejection was announced Dec. 28, four of Sam Waksal's relatives sold a total of $400,000 in company stock. Additionally, one of his daughters reportedly reaped $2.5 million from selling shares. His friend Martha Stewart, the domestic lifestyle businesswoman, also shed her remaining stake of 3,000 shares on Dec. 27.
Stewart's spokesman had said she received no inside information on ImClone.
ImClone's fortunes are totally dependent on Erbitux, an experimental cancer drug that initially garnered the company widespread praise and enthusiastic investors who drove up the stock price. The shares have plummeted by 90 percent since December because of the FDA's decision and because of the investigations into possible insider trading.
ImClone stock was down 22 cents to $7.33 early Wednesday afternoon on the Nasdaq Stock Market.
In addition to the criminal charges, the SEC filed insider-trading charges Wednesday against Sam Waksal, alleging that he learned of the Erbitux rejection on Dec. 26. In a civil lawsuit filed in federal court in Manhattan, the SEC said Waksal gave the negative information to family members who sold ImClone stock before it became public and Waksal himself tried to sell 79,797 shares worth nearly $5 million before the information became public.
It said Waksal was unable to do so because two brokerage firms wouldn't execute his sell order.
The family members sold more than $10 million of ImClone stock over two days, according to the SEC, which didn't specify the family members.
The SEC wants Waksal to be required to pay back ``several million dollars'' in losses it says were avoided by the family members he tipped, and also is seeking a civil fine against him and an order barring him from serving as an officer or director of any publicly traded company.
A subcommittee of the House Committee on Energy and Commerce is looking at ImClone and whether the FDA's secretive approval process for new drugs makes it easier to manipulate stocks.
Ken Johnson, a spokesman for the committee, said that based on the federal complaint, it appears that Sam Waksal lied to congressional investigators. He said the panel expected Waksal to appear as scheduled Thursday unless he was in jail.
``We are giving him the chance to set the record straight under oath,'' Johnson said.
Waksal was subpoenaed by the committee last week. As of Wednesday, his lawyers were still deciding whether he would invoke his Fifth Amendment right to avoid self-incrimination.