Securities and Exchange Commission
Litigation Release No. 18408 / October 10, 2003
Securities and Exchange Commission v. Samuel D. Waksal and Jack Waksal, Defendants, and Patti Waksal, Relief Defendant
02-CIV-4407 (NRB)(S.D.N.Y.)
Today, the Securities and Exchange Commission filed a second amended complaint, naming Jack Waksal as a defendant and Patti Waksal as a relief defendant. In its second amended complaint, the Commission charges, among other things, that in late December 2001, Sam Waksal, the then CEO of ImClone Systems, Inc. (IMCL), tipped his father, Jack Waksal, with the disappointing news about ImClone, that the United States Food and Drug Administration (FDA) was expected to soon issue a decision rejecting for review ImClone's pending application to market its cancer treatment, Erbitux. Before this news became public, Jack Waksal sold his own ImClone stock and ImClone stock owned by Patti Waksal, who is Jack Waksal's daughter and Sam Waksal's sister. The Commission's second amended complaint alleges that both Sam Waksal and Jack Waksal violated Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 (Exchange Act) and Rule 10b-5 thereunder and that Sam Waksal also violated Section 16(a) of the Exchange Act and Rule 16a-3 thereunder.
Specifically, the Commission's complaint alleges as follows:
- On the evening of December 26, 2001, Sam Waksal learned that on December 28, 2001, the FDA was expected to issue a Refusal to File (RTF) letter to ImClone rejecting consideration of its Biologics Licensing Application for Erbitux.
- Also starting that evening, December 26, and through December 28, Sam Waksal himself tried to sell 79,797 shares of ImClone stock worth nearly $5 million. He was unable to do so only because two different broker-dealers would not execute his orders.
- On the evening of December 26, Sam Waksal called Jack Waksal to alert him that ImClone would be receiving the bad news about the RTF letter.
- Before the market opened the next morning, December 27, Sam Waksal called his daughter Aliza and directed her to sell all of her ImClone stock. Sam Waksal was Aliza's sole means of support and controlled her bank and brokerage accounts.
- As soon as the market opened the next morning, December 27, Jack Waksal sold almost $7 million of ImClone stock. Jack Waksal continued to sell ImClone stock on December 28 and also sold ImClone stock in Patti Waksal's account. In total, Jack Waksal sold more than $8 million of ImClone stock over the next two days.
- On December 28, Sam Waksal purchased 210 ImClone put option contracts through a Swiss brokerage account.
- As expected, the FDA faxed ImClone the RTF letter at about 4 p.m. on December 28, 2001. At 6 p.m. that day, ImClone publicly announced the FDA decision. By the close of trading on December 31, the next trading day, ImClone's stock price had dropped 16%, from $55.25 to $46.46.
- By selling before the announcement that ImClone had received an RTF letter from the FDA, Sam Waksal, Jack Waksal and Patti Waksal illegally avoided trading losses and Sam Waksal received illegal options trading profits.
- Sam Waksal failed to file the required documents disclosing his purchase of ImClone put option contracts on December 28.
The Commission originally filed insider trading charges against Sam Waksal on June 12, 2002 in the United States District Court for the Southern District of New York. On March 11, 2003 the Commission filed an amended complaint against Sam Waksal charging additional insider trading and failure to publicly disclose securities transactions. At that time, without admitting or denying the related allegations, Sam Waksal consented to the entry of a partial final judgment in the Commission's action concerning his own attempted sale of ImClone stock in late December 2001, his options transactions on December 28, 2001, and the sale of ImClone stock in Aliza's brokerage account. Sam Waksal consented to: (a) permanent injunctions from future violations of 17(a) of the Securities Act and Sections 10(b) and 16(a) of the Exchange Act and Rules 10b-5 and 16a-3 thereunder; (b) disgorgement of $804,367 representing (i) the losses avoided by the sales of ImClone stock in Aliza's account, plus prejudgment interest, and (ii) Sam Waksal's profits from the options transactions he engaged in on December 28, 2001, plus prejudgment interest; and (c) an officer and director bar.
In its second amended complaint the Commission seeks to resolve the remaining issues in the case, including (a) Sam Waksal's and Jack Waksal's liability for Jack Waksal's sales of ImClone stock on December 27 and 28, 2001, and (b) civil penalties concerning the totality of the Commission's allegations against Sam Waksal and Jack Waksal.
The Commission's investigation is ongoing. The Commission acknowledges the assistance of the United States Attorney's Office for the Southern District of New York and the Federal Bureau of Investigation in the investigation of this matter.
