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WAYNE M. CARLIN (WC-2114)
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Securities and Exchange Commission, Plaintiff, against- SAMUEL D. WAKSAL, Defendant. |
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02 Civ. 4407 (NRB) AMENDED COMPLAINT |
Plaintiff, Securities and Exchange Commission ("Commission"), for its Amended Complaint against defendant Samuel D. Waksal ("Waksal"), alleges as follows:
1. The Commission charges Waksal, co-founder and former chief executive officer of ImClone Systems, Inc. ("ImClone"), with violating the federal securities laws by actual and attempted insider trading in ImClone stock, and by illegally tipping a relative about disappointing, confidential developments at ImClone. On December 26, 2001, Waksal privately learned that the United States Food and Drug Administration ("FDA") was expected to reject consideration of ImClone's application to approve ImClone's primary product, a cancer treatment called "Erbitux." On December 27 and 28, 2001, while in possession of that non-public information, Waksal attempted to sell over $5 million worth of shares of ImClone stock from one of his brokerage accounts; caused his daughter, Aliza Waksal ("Aliza"), to sell more than $2 million worth of ImClone stock from her brokerage account; and purchased ImClone put option contracts in a Swiss brokerage account. In addition, Waksal told a family member ("Family Member 1") of the impending FDA decision, and on December 27 and December 28, 2001, with that non-public information in hand, Family Member 1 sold over $8 million worth of Family Member 1's own ImClone stock. In addition, Family Member 1 sold approximately $83,000 worth of ImClone stock out of the brokerage account of another family member ("Family Member 2"). ImClone received written notification of the FDA's decision at approximately 4:00 p.m. on December 28, 2001 and publicly announced the FDA's decision in a press release at about 6:00 p.m. that day. This news prompted ImClone's stock price to drop 16% from $55.25 to $46.46 by the close of the next trading day, December 31. By engaging in insider trading before the public disclosure of ImClone's disappointing news, Waksal illegally avoided trading losses and received illegal options trading profits.
2. By the conduct alleged herein, Waksal has engaged, directly or indirectly, in transactions, acts, practices, or courses of business that constitute violations of Section 17(a) of the Securities Act of 1933 ("Securities Act"), 15 U.S.C. § 77q(a), Sections 10(b) and 16(a) of the Securities Exchange Act of 1934 ("Exchange Act"), 15 U.S.C. §§ 78j(b) and 78p(a), and Rules 10b-5 and 16a-3, 17 C.F.R. §§ 240.10b-5 and 240.16a-3, thereunder. Unless he is permanently enjoined by this Court, Waksal will continue to engage in the transactions, acts, practices and courses of business set forth in this Complaint and in transactions, acts, practices and courses of business of similar type and object.
3. The Commission brings this action pursuant to the authority conferred upon it by Section 20(b) of the Securities Act, 15 U.S.C. § 77t(b), and Section 21(d) of the Exchange Act, 15 U.S.C. § 78u(d), for permanent injunctive relief against the Defendant, from engaging in the transactions, acts, practices, and courses of business alleged in this Complaint and for civil penalties pursuant to Section 20(d) of the Securities Act, 15 U.S.C. § 77t(d), and Section 21(d) of the Exchange Act, 15 U.S.C. § 78u(d)(3). The Commission also brings this action pursuant to Section 21A of the Exchange Act, 15 U.S.C. § 78u-1, for civil penalties against the Defendant under the Insider Trading and Securities Fraud Enforcement Act of 1988 ("ITSFEA"). In addition, the Commission seeks an order barring Waksal from acting as an officer or director of any issuer that has a class of securities registered pursuant to Section 12 of the Exchange Act, 15 U.S.C. § 781, or that is required to file reports pursuant to Section 15(d) of the Exchange Act, 15 U.S.C. § 78o(d), pursuant to Section 20(e) of the Securities Act, 15 U.S.C. § 77t(e), and Section 21(d)(2) of the Exchange Act, 15 U.S.C. § 78u(d)(2), and for such other relief as the Court may deem appropriate.
4. The Defendant, directly and indirectly, singly or in concert, made use of the means or instruments of transportation or communication in, or the means or instrumentalities of, interstate commerce, or of the mails, or of any facility of any national securities exchange, in connection with the transactions, acts, practices, and courses of business alleged herein. Certain of the alleged transactions, acts, practices, and courses of business occurred in the Southern District of New York, including, but not limited to, Waksal's attempted sale of his ImClone securities, Waksal's use of material non-public information to cause Aliza's sale of ImClone stock, Waksal's order to purchase ImClone put option contracts, and Waksal's tipping of material non-public information to Family Member 1. Accordingly, this Court has jurisdiction over this action, and venue is proper in this district, pursuant to Sections 20(b) and 22(a) of the Securities Act, 15 U.S.C. §§ 77t(b), 77v(a), and Sections 21(d), 21A, and 27 of the Exchange Act, 15 U.S.C. §§ 78u(d), 78u-1, 78aa.
5. Waksal is 55 years old and resides in New York, New York. He is the co-founder of ImClone and was its CEO until he resigned on or about May 22, 2002.
6. ImClone is a Delaware corporation headquartered in New York, New York. ImClone securities are registered with the Commission pursuant to Section 12(g) of the Exchange Act, 15 U.S.C. §§ 78l(g), and are traded on The Nasdaq Stock Market. The company is a biopharmaceutical corporation, which is currently developing several cancer treatments including its lead product, Erbitux.
7. At the time of the transactions and events alleged in this Complaint, Waksal was ImClone's CEO, and therefore owed a fiduciary duty to ImClone and its shareholders. As a result, Waksal had a fiduciary duty, among other things, not to trade while in possession of material non-public information and to keep material non-public information confidential.
8. Over the past several years, ImClone has devoted significant resources to developing a cancer treatment called "Erbitux," with the objective of obtaining FDA approval to market the product. ImClone's Form 10-K Annual Report for the fiscal year ended December 31, 2001 described Erbitux as ImClone's "lead product candidate" and said that Erbitux "has been shown in several early stage clinical trials . . . when administered with either radiation therapy or chemotherapy, to cause tumor reduction in certain cases." ImClone has intended to market Erbitux in the United States and Canada with its development, promotional and distribution partner, Bristol-Myers Squibb Company ("Bristol-Myers"). On September 19, 2001, ImClone announced that Bristol-Myers would invest a total of $1 billion in Erbitux and also buy $1 billion in outstanding ImClone stock and would co-develop and co-promote Erbitux with ImClone. Waksal played a direct role in coordinating and publicizing ImClone's efforts to develop, and obtain FDA approval for, Erbitux.
9. On June 28, 2001, ImClone began the process of submitting a rolling application for FDA approval for Erbitux, called a Biologics License Application ("BLA"). On October 31, 2001, ImClone submitted to the FDA the final substantial portion of its BLA.
10. ImClone's October 31, 2001 submission of its BLA gave the FDA 60 days, until Monday, December 31, to decide whether to accept ImClone's BLA for filing. By the end of December 2001, the FDA had three options. It could (1) accept ImClone's BLA for filing; (2) accept the BLA for filing, but simultaneously issue a disciplinary review letter notifying ImClone that the BLA still had serious deficiencies that it would need to correct before the BLA could be approved; or (3) refuse to file the BLA by issuing a Refusal to File ("RTF") letter. The issuance of an RTF letter is a disappointing development for an applicant because it means that the applicant must file a new BLA to begin the process again.
11. On December 25, 2001, Bristol-Myers learned from a source at the FDA, that the FDA would issue an RTF letter to ImClone on December 28, 2001. On the evening of Wednesday, December 26, 2001, Waksal learned about the FDA's decision to issue an RTF letter on December 28, 2001. When Waksal returned to the office the following morning, December 27, among other things, he learned that the company was preparing draft press releases focusing entirely on disclosing the FDA's issuance of an RTF letter.
12. The information Waksal received on December 26 and 27, 2001, as set forth in paragraph 11, above, was material and non-public. This information was not disclosed to the public until approximately 6:00 p.m. on Friday, December 28, 2001, when, after the close of trading, ImClone issued a press release stating, in pertinent part, that the FDA "has advised the Company that at this time it is not accepting for filing in its current form the Company's rolling . . . BLA for ERBITUX TM."
13. Beginning on the evening of Wednesday, December 26, when Waksal learned that ImClone would receive an RTF letter that Friday, Waksal, in breach of a fiduciary duty to ImClone and its shareholders, attempted to dispose of 79,797 shares of ImClone stock that originated in his brokerage account at Merrill Lynch, Pierce, Fenner & Smith, Incorporated ("Merrill Lynch"). Initially, in the evening of December 26, Waksal instructed his agent to transfer those shares to his daughter's account at Merrill Lynch. The following morning, Waksal instructed his agent to sell those shares. When Waksal's agent contacted Merrill Lynch to accomplish this, a representative of Merrill Lynch told him that the shares were restricted and could not be sold without ImClone's counsel's approval. Merrill Lynch refused to execute the trades. Thereafter, Waksal instructed his agent to transfer the shares from Merrill Lynch to Bank of America ("B of A") and then to sell them. After B of A informed Waksal's agent that they would not sell the shares, the transfer never occurred and the shares were never sold.
14. In the morning of December 27, before the market opened, Waksal knowingly or recklessly, for his direct or indirect benefit and in breach of a fiduciary duty to ImClone and its shareholders, had a telephone conversation with his daughter, Aliza, while in possession of material, non-public information that the FDA had decided to issue an RTF letter to ImClone on December 28.
15. At that time, Waksal was Aliza's sole means of support and controlled her bank and brokerage accounts.
16. During the conversation referred to in paragraph 14, Waksal directed Aliza to sell all of her ImClone shares. By causing Aliza to sell ImClone stock, Waksal benefited because he was her entire means of financial support.
17. Immediately after speaking with Waksal, Aliza placed an order at 9 a.m. to sell 39,472 shares of ImClone stock. That order was executed on December 27 in four blocks between 9:35 a.m. and 9:48 a.m., at prices between $62.28 and $63.20 per share.
18. By selling the 39,472 shares of ImClone stock on December 27, instead of waiting until news of the RTF letter became public, Aliza avoided $630,295 in trading losses.
19. On December 28, 2001, while in possession of the material non-public information that ImClone would receive an RTF letter that day, Waksal, in breach of a fiduciary duty to ImClone and its shareholders, purchased 200 ImClone Jan 02 50 put option contracts and 10 ImClone Jan 02 55 put option contracts. Waksal made these purchases through an account at Discount Bank and Trust AG in Switzerland. Waksal sold all 210 put option contracts on January 4, 2002 and profited in the amount of $130,130.
20. Waksal failed to file a statement disclosing a change of ownership of his ImClone securities as required by Section 16(a) of the Exchange Act and Rule 16a-3.
21. On December 26, 2001, the night Waksal learned of the impending RTF letter, Waksal, knowingly or recklessly, for his direct or indirect benefit and in breach of a fiduciary duty to ImClone and its shareholders, communicated to Family Member 1, in words or in substance, material, non-public information that the FDA had decided to issue an RTF letter to ImClone on December 28.
22. Waksal, intending to bestow upon Family Member 1 a gift of illegal profits, communicated this information to Family Member 1, knowing or having reason to know that Family Member 1 would sell ImClone stock.
23. The morning after speaking with Waksal, Family Member 1 placed orders to sell a total of 110,000 shares of ImClone stock. Family Member 1 placed these orders on December 27 with three different broker-dealers between 9:18 a.m. and 9:45 a.m. The orders were executed between 9:45 a.m. and 10:02 a.m., at prices between $61.25 and $62.16 per share.
24. Additionally, on the same morning, December 27, after speaking with Waksal the night before, Family Member 1 called Prudential Securities before 9:30 a.m. and placed an order to sell 1,336 shares of ImClone stock from the account of Family Member 2. That order was executed at 9:30 a.m. at about $62.20 per share. Family Member 1 had exercised control over Family Member 2's investments in this Prudential Securities account since Family Member 1 arranged for the opening of that account in August 2000.
25. On the following morning, December 28, Family Member 1 sold another 25,000 shares of ImClone stock. This order was placed at 9:29 a.m. and executed at 10:09 a.m. at $57.19 per share.
26. By selling 135,000 shares of his ImClone stock on December 27 and December 28, instead of waiting until the news of the RTF letter became public, Family Member 1 avoided losses in an amount to be determined at trial.
27. By selling 1,336 shares of Family Member 2's ImClone stock on December 27, Family Member 1 avoided losses for Family Member 2 in an amount to be determined at trial.
28. The Commission realleges and incorporates by reference the allegations contained in Paragraphs 1 through 27, above.
29. Waksal, directly or indirectly, singly or in concert, by the use of the means or instruments of transportation or communication in, or the means or instrumentalities of, interstate commerce, or by use of the mails, or of any facility of any national securities exchange, in the offer or sale, and in connection with the purchase or sale, of ImClone securities: (a) employed devices, schemes, or artifices to defraud; (b) obtained money or property by means of, or otherwise made, untrue statements of material fact or omitted to state material facts necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading; and (c) engaged in transactions, acts, practices and courses of business which operated or would have operated as a fraud or deceit upon purchasers of ImClone securities and upon other persons, as more fully described in paragraphs 1 through 27.
30. As part of and in furtherance of this violative conduct, Waksal, in breach of a fiduciary duty to ImClone's shareholders and while in possession of material non-public information, attempted to sell 79,797 shares of his ImClone stock on December 27 and 28, 2001.
31. By reason of the activities described in paragraphs 1 through 27, above, Waksal, singly or in concert, directly or indirectly, violated, and unless enjoined will again violate, Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act and Rule 10b-5 thereunder.
32. The Commission realleges and incorporates by reference the allegations contained in Paragraphs 1 through 27, above.
33. Waksal, directly or indirectly, singly or in concert, by the use of the means or instruments of transportation or communication in, or the means or instrumentalities of, interstate commerce, or by use of the mails, or of any facility of any national securities exchange, in the offer or sale, and in connection with the purchase or sale, of ImClone securities: (a) employed devices, schemes, or artifices to defraud; (b) obtained money or property by means of, or otherwise made, untrue statements of material fact or omitted to state material facts necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading; and (c) engaged in transactions, acts, practices and courses of business which operated or would have operated as a fraud or deceit upon purchasers of ImClone securities and upon other persons, as more fully described in paragraphs 1 through 27.
34. As part of and in furtherance of this violative conduct, Waksal, in breach of a fiduciary duty to ImClone's shareholders and while in possession of material non-public information, caused Aliza to sell ImClone stock on December 27, 2001.
35. By reason of the activities describe in paragraphs 1 through 27, above, Waksal, singly or in concert, directly or indirectly, violated, and unless enjoined will again violate, Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act, and Rule 10b-5 thereunder.
36. The Commission realleges and incorporates by reference the allegations contained in Paragraphs 1 through 27, above.
37. Waksal, directly and indirectly, singly and in concert, by the use of the means and instrumentalities of interstate commerce, or of the mails, or of the facilities of a national securities exchange, in connection with the purchase or sale of ImClone securities: (a) employed devices, schemes, and artifices to defraud; (b) made untrue statements of material fact and omitted to state material facts necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading; and (c) engaged in acts, practices, and courses of business which operated as a fraud and deceit upon purchasers of ImClone securites and upon other persons directly, as more fully described in paragraphs 1 through 27.
38. As part of and in furtherance of this violative conduct, Waksal, in breach of a fiduciary duty to ImClone's shareholders, while in possession of material non-public information and knowing it was illegal, purchased 210 ImClone put option contracts on December 28, 2001.
39. By reason of the activities describe in paragraphs 1 through 27, above, Waksal, singly or in concert, directly or indirectly, violated, and unless enjoined will again violate, Section 10(b) of the Exchange Act, and Rule 10b-5 thereunder.
40. The Commission realleges and incorporates by reference the allegations contained in Paragraphs 1 through 27 above.
41. Waksal, as an officer of ImClone, was required to file reports of ownership and changes of ownership with the Commission pursuant to Section 16(a) of the Exchange Act and Rule 16a-3 thereunder, as more fully described in paragraphs 1 through 27.
42. By failing to report his purchase of ImClone put option contracts on December 28, 2001, Waksal failed to report changes in his ownership interests in ImClone securities as required by Section 16(a) of the Exchange Act and Rule 16a-3 thereunder.
43. By reason of the activities described in paragraphs 1 through 27, above, Waksal, singly or in concert, directly or indirectly, violated, and unless enjoined will again violate, Section 16(a) of the Exchange Act and Rule 16a-3 thereunder.
44. The Commission realleges and incorporates by reference the allegations contained in Paragraphs 1 through 27, above.
45. Waksal, directly or indirectly, singly or in concert, by the use of the means or instruments of transportation or communication in, or the means or instrumentalities of, interstate commerce, or by use of the mails, or of any facility of any national securities exchange, in the offer or sale, and in connection with the purchase or sale, of ImClone securities: (a) employed devices, schemes, or artifices to defraud; (b) obtained money or property by means of, or otherwise made, untrue statements of material fact or omitted to state material facts necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading; and (c) engaged in transactions, acts, practices and courses of business which operated or would have operated as a fraud or deceit upon purchasers of ImClone securities and upon other persons, as more fully described in paragraphs 1 through 27.
46. As part of and in furtherance of this violative conduct, Waksal illegally tipped to Family Member 1 the material non-public information that ImClone would receive an RTF letter from the FDA.
47. By reason of the activities described in paragraphs 1 through 27, above, Waksal, singly or in concert, directly or indirectly, violated, and unless enjoined will again violate, Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act and Rule 10b-5 thereunder.
WHEREFORE, Plaintiff respectfully requests a Final Judgment:
Dated: New York, New York
March 11, 2003
Respectfully submitted,
_____________________
By: WAYNE M. CARLIN (WC-2114)
Regional Director
Attorney for Plaintiff
SECURITIES AND EXCHANGE COMMISSION
233 Broadway
New York, New York 10279
(646) 428-1510
Of Counsel:
Edwin H. Nordlinger
Barry W. Rashkover
Helene T. Glotzer
Bruce Karpati
Jill M. Slansky (Admitted in California but not the S.D.N.Y.)
http://www.sec.gov/litigation/complaints/comp18026.htm
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