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Guilty Pleas Expected From ImClone's Waksal

Trading Case Ensnared Martha Stewart

Oct 15, 2002 | The Washington Post Samuel Waksal, founder and former chief executive of ImClone Systems Inc., is expected to plead guilty to multiple criminal charges this morning in the insider-trading case that has ensnared lifestyle guru Martha Stewart, according to sources familiar with the case.

Waksal, who resigned from the New York-based biotechnology company earlier this year amid growing controversy, was charged June 12 with federal counts of securities fraud, perjury, bank fraud and obstruction of justice. He is not expected to plead guilty to all of the counts.

A spokesman for the U.S. attorney's office in New York, which is prosecuting the case, would not comment. But the spokesman did confirm that a hearing in the matter would be held this morning. A spokesman for Waksal did not return a call to his home early this morning. An attorney for Waksal, Lewis J. Liman, also did not return calls.

Waksal has been negotiating with prosecutors for weeks to try to secure a lighter sentence and to protect family members who have also been targeted in the probe. It was not clear whether Waksal had reached a deal with the U.S. attorney's office or had decided to plead guilty to certain charges in hopes of receiving a lighter sentence.

Prosecutors have been discussing whether to bring charges against Waksal's father, Jack, and his daughter Aliza. They are accused of selling about $10 million worth of ImClone shares after being tipped off by Samuel Waksal about impending bad news about the ImClone's main product, the cancer-fighting drug Erbitux. Stewart, a close friend of Samuel Waksal's, sold nearly 4,000 shares of ImClone, worth about $230,000.

The questionable stock sales took place just before the firm announced late last year that the Food and Drug Administration had rejected an initial application to approve Erbitux, a drug that showed early promise in treating colorectal cancer. ImClone shares, already dropping, began a steep decline after the Erbitux announcement. Stewart has said she sold because she had a prearranged agreement to liquidate her ImClone holdings when the share priced dropped below $60, as it did on Dec. 27, the day of her sale. ImClone announced the FDA decision Dec. 28.

But Merrill Lynch, the brokerage firm that handled Stewart's trade, turned up no solid evidence of such an agreement in an internal investigation. And an assistant to Stewart's Merrill Lynch broker pleaded guilty early this month to helping concoct the story of the "stop-loss" agreement. The assistant, Douglas Faneuil, told a judge that the Merrill broker, Peter Bacanovic, gave him extra vacation and an airline ticket to mislead Securities and Exchange Commission and FBI investigators about what he knew.

Legal experts have said Faneuil's plea would put pressure on Bacanovic to cooperate in the ImClone investigation. Neither Bacanovic nor Stewart has been charged with any crime. Prosecutors are said to be considering charges of both insider trading and obstruction of justice against Stewart, chief executive of Martha Stewart Living Omnimedia Inc. An attorney for Stewart could not be reached for comment regarding Waksal's anticipated guilty plea. Shares in Stewart's company have suffered badly under months of tabloid headlines surrounding her ImClone trade.

In August, Waksal, a New York socialite long known for his lavish parties and famous friends, pleaded not guilty to multiple counts of securities and bank fraud.

The bank-fraud charge alleges that he used ImClone shares he no longer controlled to secure $44 million in loans from Bank of America. That charge, the most serious of the 13 counts against Waksal, carries a maximum sentence of 30 years in prison. He also is charged with obstruction of justice and a handful of other offenses.

Prosecutors allege that two Waksal family members, identified by sources as his father and daughter, started quickly selling their ImClone shares in late December after Samuel Waksal alerted them to the impending bad news. Waksal also allegedly attempted to sell $5 million of his own ImClone shares through a family member's account but had the sales refused by brokers who cited a company ban on insider sales.

A source familiar with the case said recently that prosecutors had been negotiating a plea arrangement with Waksal's attorneys. Talks broke down, the source said, when the two sides could not agree on the size of a fine or the length of a prison term.

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