BARRY W. RASHKOVER (BR-6413)
UNITED STATES DISTRICT COURT
Plaintiff, Securities and Exchange Commission ("Commission"), for its Second Amended Complaint against defendants Samuel D. Waksal ("Sam Waksal") and Jack Waksal (collectively the "Defendants"), and Relief Defendant Patti Waksal alleges as follows:
1. The Commission charges Sam Waksal, co-founder and former chief executive officer of ImClone Systems, Inc. ("ImClone"), with violating the federal securities laws in late December 2001 by actual and attempted insider trading in ImClone stock, and by illegally tipping his father Jack Waksal about disappointing, confidential developments at ImClone. Additionally, the Commission charges Jack Waksal with illegal insider trading in ImClone stock after receiving Sam Waksal's illegal tip. On December 26, 2001, Sam 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, Sam 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, Sam Waksal told Jack Waksal of the impending FDA decision, and on December 27 and December 28, 2001, with that non-public information in hand, Jack Waksal sold over $8 million worth of his own ImClone stock. In addition, Jack Waksal sold approximately $83,000 worth of ImClone stock out of the brokerage account of his daughter, Patti Waksal. 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, the Defendants and Relief Defendant illegally avoided trading losses and Sam Waksal received illegal options trading profits.
2. By the conduct alleged herein, the Defendants have 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), Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act"), 15 U.S.C. § 78j(b), and Rule 10b-5,17 C.F.R. § 240.10b-5, thereunder. Sam Waksal has also engaged, directly or indirectly, in transactions, acts, practices, or courses of business that constitute violations of Section 16(a) of the Exchange Act, 15 U.S.C. § 78p(a), and Rule 16a-3,17 C.F.R. § 240.16a-3. Absent permanent injunctions by this Court, the Defendants 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.
JURISDICTION AND VENUE
3. The Commission has brought 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 Defendants, from engaging in the transactions, acts, practices, and courses of business alleged in this Complaint and for civil penalties against Sam Waksal 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 has brought this action pursuant to Section 21A of the Exchange Act, 15 U.S.C. § 78u-1, for civil penalties against the Defendants under the Insider Trading and Securities Fraud Enforcement Act of 1988 ("ITSFEA"). In addition, the Commission has sought an order barring Sam 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 Defendants, 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, Sam Waksal's attempted sale of his ImClone securities, Sam Waksal's use of material non-public information to cause Aliza's sale of ImClone stock, Sam Waksal's order to purchase ImClone put option contracts, and Sam Waksal's tipping of material non-public information to Jack Waksal. 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. The Defendants and Relief Defendant are:
a. Sam Waksal is 56 years old and resides in Minersville, Pennsylvania at the Schuylkill Federal Correctional Institution. He is the co-founder of ImClone and was its CEO until he resigned on or about May 22, 2002. On June 12, 2002, he was arrested for securities fraud and perjury. On August 7, 2002, Sam Waksal was indicted for bank fraud, securities fraud, and perjury, based on the same facts giving rise to this action. On October 15, 2002, Sam Waksal pleaded guilty to all of the counts in the indictment except those counts based on allegations that he passed material, nonpublic information to Jack Waksal. On March 3, 2003, Sam Waksal also pleaded guilty to tax evasion charges for failing to pay New York State sales tax on certain art purchases. On June 10, Sam Waksal was sentenced to 87 months in prison and was ordered to pay a $3 million fine and $1.2 million in restitution to the New York State Tax Commission. Sam Waksal began serving his prison sentence on July 23, 2003. On or about March 17, 2003, the Court entered a Partial Judgment and Order on Consent against Samuel D. Waksal ("Consent Judgment") in this action in which, as more fully set forth therein, the Court, inter alia (a) permanently enjoined Sam Waksal from violating Section 17(a) of the Securities Act, 15 U.S.C. § 77q(a), Section 10(b) of the Exchange Act, 15 U.S.C. § 78j(b), and Rule 10b-5,17 C.F.R. § 240.10b-5, Section 16(a) of the Exchange Act, 15 U.S.C. § 78p(a), and Rule 16a-3,17 C.F.R. § 240.16a-3; (b) directed Sam Waksal to disgorge $804,367; (c) barred Sam 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.§ 78l, or that is required to file reports pursuant to Section 15(d) of the Exchange Act, 15 U.S.C.§ 78o(d); (d) entered partial judgment on the First, Second, Third and Fourth Claims for Relief in the Amended Complaint dated March 11, 2003 ("Amended Complaint"); and (e) stayed resolution of the Fifth Claim for Relief of the Amended Complaint and all issues concerning civil penalties arising out of the totality of the allegations in the Amended Complaint pending resolution of criminal charges against Sam Waksal. As more fully set forth in the Consent of Defendant Samuel D. Waksal dated March 4, 2003 accompanying the Consent Judgment, Waksal neither admitted nor denied the allegations of the Amended Complaint (except as to personal and subject matter jurisdiction, which he admitted) to the extent not inconsistent with the Consent Judgment.
b. Jack Waksal is 82 years old and resides in East Hampton, New York and Hallandale, Florida. He is Sam Waksal's and Patti Waksal's father.
c. Patti Waksal is 47 years old and resides in Bethesda, Maryland. She is Jack Waksal's daughter and Sam Waksal's sister.
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.
THE ILLEGAL CONDUCT
Sam Waksal's Fiduciary Duty
7. At the time of the transactions and events alleged in this Complaint, Sam Waksal was ImClone's CEO, and therefore owed a fiduciary duty to ImClone and its shareholders. As a result, Sam 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.
ImClone's Erbitux Application
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 intends 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. Sam 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.
Sam Waksal Learns of the FDA Decision And Attempts to Trade ImClone Securities
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, Sam Waksal learned about the FDA's decision to issue an RTF letter on December 28, 2001. When Sam 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 Sam 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 Sam Waksal became aware that ImClone would receive an RTF letter that Friday, Sam 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, Sam Waksal instructed his agent to transfer those shares to his daughter's account at Merrill Lynch. The following morning, Sam Waksal instructed his agent to sell those shares. When Sam 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. When Merrill Lynch refused to execute the trades, Sam 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 Sam Waksal's agent that they would not sell the shares, the transfer never occurred and the shares were never sold.
Sam Waksal Causes Aliza to Sell ImClone Stock
14. In the morning of December 27, before the market opened, Sam 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, Sam Waksal was Aliza's sole means of support and controlled her bank and brokerage accounts.
16. During the conversation referred to in Paragraph 14, Sam Waksal directed Aliza to sell all of her ImClone shares. By causing Aliza to sell ImClone stock, Sam Waksal benefited because he was her entire means of financial support.
17. Immediately after speaking with Sam 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.
Sam Waksal Purchases ImClone Option Contracts
19. On December 28, 2001, while in possession of the material non-public information that ImClone would receive an RTF letter that day, Sam 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. Sam Waksal made these purchases through an account at Discount Bank and Trust AG in Switzerland. Sam Waksal sold all 210 put option contracts on January 4, 2002 and profited in the amount of $130,130.
20. Sam 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.
Sam Waksal Tips Jack Waksal, Who Sells
21. On December 26, 2001, the night Sam Waksal learned of the impending RTF letter, Sam Waksal, knowingly or recklessly, for his direct or indirect benefit and in breach of a fiduciary duty to ImClone and its shareholders, communicated to Jack Waksal, in words or in substance, material, non-public information that the FDA had decided to issue an RTF letter to ImClone on or about December 28.
22. Sam Waksal, intending to bestow upon Jack Waksal a gift of illegal profits or illegal loss avoidance, communicated the information described in Paragraph 21 to Jack Waksal, knowing or having reason to know that Jack Waksal would sell ImClone stock.
23. On December 27, 2001, while aware of the information described in Paragraph 21, Jack Waksal placed orders to sell a total of 110,000 shares of ImClone stock. Jack Waksal placed these orders 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, that same morning, December 27, while aware of the information described in Paragraph 21, Jack Waksal called Prudential Securities before 9:30 a.m. and placed an order to sell 1,336 shares of ImClone stock from the account of Patti Waksal. That order was executed at 9:30 a.m. at about $62.20 per share. Jack Waksal had exercised control over Patti Waksal's investments in this Prudential Securities account since Jack Waksal arranged for the opening of that account in August 2000.
25. On the following morning, December 28, while aware of the information described in Paragraph 21, Jack Waksal 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. On December 27 and December 28, when Jack Waksal sold his and Patti Waksal's ImClone stock, he knew or acted in reckless disregard of the fact that (1) he possessed confidential, non-public information that ImClone would receive an RTF letter from the FDA; and (2) Sam Waksal breached a fiduciary duty he owed to ImClone and its shareholders when he gave Jack Waksal that information.
27. Jack Waksal provided false and misleading explanations for his trades, and falsely testified about the events of December 26 through 28, 2001 when questioned about them by the Commission staff.
28. 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, Jack Waksal avoided losses in an amount to be determined at trial.
29. By selling 1,336 shares of Patti Waksal's ImClone stock on December 27, Jack Waksal avoided losses for Patti Waksal in an amount to be determined at trial.
FIRST CLAIM FOR RELIEF
Sam Waksal Violated Section 17(a) of the Securities Act,
|Dated:||New York, New York|
|October 10, 2003|
|By:||BARRY W. RASHKOVER (BR-6413)|
Associate Regional Director
Attorney for Plaintiff
SECURITIES AND EXCHANGE COMMISSION
New York, New York 10279
Helene T. Glotzer
Jill Slansky (Admitted in California but not the S.D.N.Y.)
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