Former ImClone chief pleads guilty to fraud

`I've made some terrible mistakes,' says Waksal, biotech company's founder

October 16, 2002|By Thomas S. Mulligan | Thomas S. Mulligan,SPECIAL TO THE SUN

NEW YORK - ImClone Systems Inc. founder Samuel D. Waksal pleaded guilty yesterday to insider trading, bank fraud and other crimes, but prosecutors said he still isn't cooperating in their widening investigation of questionable stock transactions.

The government's prime target appears to be Martha Stewart, a close Waksal friend whose 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, chief executive of Martha Stewart Living Omnimedia Inc., said in a statement issued through a public relations firm yesterday: "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 and entrepreneur, pleaded guilty 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 for the bank-fraud charge.

A plea such as Waksal's 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 attempt to dump ImClone shares in December, just before a devastating U.S. Food and Drug Administration ruling was made public.

Waksal testified that he learned Dec. 26 that the FDA would turn down the application of Erbitux, ImClone's most prominent cancer drug.

Knowing that 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.

The next day, Waksal said, he arranged to get 79,797 of his shares transferred to his daughter's account at Merrill Lynch & Co. Inc. and attempted to sell them. Merrill blocked the transaction because the shares were restricted and not available for sale.

Waksal also recounted how, after the Securities and Exchange Commission opened an investigation into the sales this year, he suggested that his daughter lie to agency investigators about his phone call. He said he also lied in his testimony in April.

Waksal also 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 yesterday that they are examining the previously undisclosed sales of $600,000 worth of ImClone stock by a "close friend" of Waksal on Dec. 28 and 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 might charge Waksal with orchestrating those stock sales, which, because of their high value, could lead to a much stiffer prison sentence than the one he now faces.

Thomas S. Mulligan is a reporter for the Los Angeles Times, a Tribune Publishing Co. newspaper.

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