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Reuters Business Report
Ex-ImClone CEO Indicted for Fraud
By Gail Appleson

NEW YORK (Reuters) - ImClone Systems former Chief Executive Samuel Waksal, already charged with insider trading, was indicted on Wednesday for obstruction of justice and bank fraud in a case that has rocked investors' confidence.

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A 13-count grand jury indictment of Waksal, 54, who was first charged in an insider trading complaint in June, expands the case to include the new charges and more extensive allegations of securities crimes. If convicted on the bank fraud count alone, he could face up to 30 years in prison.

The case, which has enveloped homemaking guru Martha Stewart, is one of several scandals that have sapped investor confidence in corporate America and helped fuel a bear market on Wall Street this year.

Waksal's lawyer, Mark Pomerantz, called the indictment a "painful chapter" in Waksal's life. "Like all Americans, he is presumed innocent and he will respond to these charges as required," Pomerantz said in a statement.

The new charges allege that Waksal defrauded Bank of America Corp. by pledging ImClone securities that he no longer owned to secure loans made to him by the bank. The indictment alleges he supplied a fabricated document in which he had forged the signature of ImClone's general counsel to fool the bank into believing he still owned the securities.

The letter allegedly misled Bank of America to think that it had sufficient security for over $44 million in loans that it made to Waksal and the entities that he controlled.

The indictment also accuses Waksal of trying to obstruct the Securities and Exchange Commission's investigation into insider trading in ImClone shares. The indictment said when he learned that the U.S. Food and Drug Administration would reject ImClone's application to market its highly touted new cancer drug, Erbitux, he tried to sell shares and tipped off others ahead of a public announcement.

It charges Waksal with two counts of conspiracy to commit securities fraud and wire fraud, seven counts of securities fraud, one count of conspiracy to commit perjury and to obstruct justice, one count of perjury, one count of obstruction of justice, and one count of bank fraud.

Waksal had been trying to reach a plea deal with federal prosecutors for weeks in an effort to avoid the grand jury indictment that allows the case to go to trial.

The indictment includes earlier charges that he tried to sell 79,797 shares in ImClone and tipped off two people before news that Erbitux would be rejected. The announcement wreaked havoc on the company's stock.

Waksal has been accused of receiving a tip on Dec. 26 from his brother Harlan, then the company's chief operating officer and now its chief executive, about the FDA rejection.

The SEC previously filed a related civil suit against Waksal alleging the people he tipped were family members. Although neither the indictment nor the SEC complaint names the two family members, they have previously been identified by legal sources as Waksal's father, Jack, and daughter, Aliza.

The indictment alleged that when Waksal and the two he tipped off received subpoenas to testify before the SEC, they agreed to lie about their conversations prior to the sale of ImClone stock.

As part of their pact, Waksal allegedly denied to the SEC that he had suggested that they sell their ImClone shares.

The indictment alleges that after Waksal learned the SEC had begun a probe and ImClone's lawyers began to gather documents requested by the agency, he directed the destruction of certain records including computer files containing Waksal's telephone messages and other records for offshore accounts he maintained in Geneva and Amsterdam.

According to the allegations, Waksal would have known this information was important to the SEC's probe because the telephone messages would have revealed the identities of those Waksal might have tipped.

Also under federal investigation is Stewart, a friend of Waksal who sold nearly 4,000 shares of ImClone the day before the FDA news was made public. She has repeatedly said her sale was lawful and based on public information. Although no criminal charges have been filed against her, she has been sued privately by shareholders in her company, Martha Stewart Living Omnimedia .

The bank fraud allegations against Waksal charge that as collateral for a multi-million dollar loan, Waksal pledged a warrant for ImClone stock that gave him the right to buy 350,000 shares at $5.50 per share. This price was substantially below the then market price of ImClone stock.

On April 21, 1999, Waksal pledged the warrant as security for two separate lines of credit, one extended by Bank of America and one extended by Refco Capital Markets. The indictment alleges that Waksal defrauded Bank of America by failing to disclose that he used the warrant as collateral for the Refco line of credit as well.

In the summer of 2000, he fully exercised the warrant, making it worthless, and did not tell either lender.

When Bank of America asked for documents proving the warrant remained valid, Waksal allegedly forged the signature of ImClone's general counsel to a letter stating that Waksal still owned the warrant.