ImClone Founder, Stewart Friend Pleads Guilty In Trading ScandalOct 16, 2002 | Los Angeles Times ImClone Systems Inc. founder Samuel Waksal pleaded guilty Tuesday to insider trading, bank fraud and other crimes, but prosecutors said he still isn't cooperating in their widening probe of questionable stock transactions.
The government's prime target appears to be home-and-hearth tycoon Martha Stewart, a close Waksal friend whose own timely sale of ImClone shares has drawn investigators' scrutiny, said Houston lawyer Christopher Bebel, a former federal prosecutor who has watched the case closely.
"The prosecutors believe Dr. Waksal has information which will directly or indirectly target Martha Stewart, and as a result, the government is trying to coerce Dr. Waksal into cooperating," Bebel said.
Lawyers for Stewart, the chief executive of Martha Stewart Living Omnimedia Inc., issued a short statement through a public-relations firm Tuesday: "Sam Waksal's guilty plea has nothing to do with Martha Stewart." Beyond that, Stewart and her representatives offered no comment.
Waksal, 55, an immunologist, entrepreneur and former A-list New York socialite, pleaded guilty Tuesday to six of the 13 felony counts lodged against him in a federal complaint in June. Together, the six charges carry a maximum prison term of 65 years, including 30 years alone for the bank-fraud charge.
Such a plea is unusual without a cooperation agreement under which prosecutors would drop the remaining charges. Waksal appeared to be calculating that his guilty plea would satisfy prosecutors and keep them from pursuing related insider-trading cases against his father, Jack, and daughter Aliza.
"This has been a difficult time and a sad time," Waksal said in a brief statement outside the lower Manhattan courthouse after entering his plea. "I've made some terrible mistakes, and I deeply regret what has happened. I was wrong."
During the hourlong hearing before U.S. District Judge William H. Pauley III, Waksal detailed the chain of lies, fraud and cover-up that surrounded his desperate attempt to dump ImClone shares in December ahead of a devastating U.S. Food and Drug Administration ruling.
Waksal testified that he learned Dec. 26 that the FDA would turn down the application of Erbitux, ImClone's most prominent cancer drug.
Knowing the company's share price would plunge on the bad news, Waksal said he phoned his daughter that day and insisted that she sell her 39,472 shares of stock, then worth $2.5 million. He said he did not tell her about the adverse FDA ruling.
Waksal said that the next day he arranged to get 79,797 of his own shares transferred to his daughter's brokerage account at Merrill Lynch and attempted to sell them. Merrill blocked the transaction, however, because the shares were restricted and not available for sale.
Waksal also recounted how, after the Securities and Exchange Commission launched an investigation into the sales this year, he suggested his daughter lie to agency investigators about his phone call. He said he also lied in his own testimony in April.
Finally, in the bank-fraud count, Waksal admitted intercepting a letter that Bank of America had sent to ImClone's chief counsel in 2000 asking for verification that Waksal still owned securities he had pledged in 1999 as collateral on a line of credit. Waksal said he forged the counsel's name on a return letter verifying the ownership, so that the credit line would be extended.
Prosecutors also revealed Tuesday that they are examining the previously undisclosed sales of $600,000 worth of ImClone stock by a "close friend" of Waksal's on Dec. 28, plus the sale of $30 million worth of shares in a series of transactions Dec. 27 and 28 that followed "phone conversations between Dr. Waksal and [a] tippee."
The implication is that prosecutors would charge Waksal with orchestrating those stock sales, which, because of the high dollar amount, could lead to a much stiffer prison sentence than the one he already faces because of his guilty plea, Bebel, the former prosecutor, said.