ImClone's stock price dropped sharply at the end of 2001 when its drug Erbitux, an experimental monoclonal antibody, failed to get the expected Food and Drug Administration (FDA) approval. It was later revealed by the U.S. Securities and Exchange Commission that prior to the announcement (after the close of trading on December 28) of the FDA's decision, numerous executives sold their stock.[1] ImClone's founder, Samuel D. Waksal, was arrested in 2002 on insider trading charges for instructing friends and family to sell their stock, and attempting to sell his own. His daughter, Aliza Waksal, sold $2.5 million in shares on December 27. His father, Jack Waksal, sold $8.1 million in shares over the 27th and 28th; company executives followed suit. John B. Landes, the general counsel, sold $2.5 million in shares on December 6. Ronald A. Martell, the vice president for marketing and sales, sold $2.1 million in shares on December 11. Four other executives sold shares in the following weeks as well. Later, founder Waksal pleaded guilty to various charges, including securities fraud, and on June 10, 2003, was sentenced to seven years and three months in prison.
Martha Stewart, the founder of Martha Stewart Living Omnimedia, also became embroiled in the scandal after it emerged that her broker, Peter Bacanovic, tipped her off that ImClone was about to drop. In response, Stewart sold about $230,000 in ImClone shares on December 27, 2001, a day before the announcement of the FDA decision. Stewart's involvement would have never come to light had Doug Faneuil, Bacanovic's assistant, not disclosed it to investigators.[1] Although Stewart maintained her innocence, she was found guilty and sentenced on July 16, 2004, to five months in prison, five months of home confinement, and two years' probation for lying about a stock sale, conspiracy, and obstruction of justice.
Ultimately a new clinical trial and FDA filing prepared by ImClone's partner Merck KGaA ("German Merck" not to be confused with the U.S. company of similar name) resulted in an FDA approval of Erbitux in 2004 for use in colon cancer.
A Congressional hearing on improprieties at ImClone, held in October 2002, unveiled a culture of corruption dating back to 1986. This was the year that ImClone CEO Waksal first forged the signature of the company's general counsel John Landes (one of the three original employees of the company) for financial gain. Nonetheless, Landes defended Waksal's illegal actions at the hearings before the Subcommittee on Oversight and Investigations, portraying the forgery as "a good-faith misunderstanding". The subcommittee's chairman, Jim Greenwood of Pennsylvania, replied, "My children know better than that, Mr. Landes." Further questioning about this and subsequent forgeries on Waksal's part revealed that neither Landes, the chief legal officer of the company, nor the company's outside directors reported Waksal's actions to proper authorities or made any moves to have Waksal removed as CEO. Instead, testimony revealed that they initiated their own internal investigation, which was never concluded.
The FDA's February 2004 announcement of approval for use of Erbitux for treatment of colorectal cancer reported that conclusions were drawn from a trial involving 329 patients, of which 10.8% responded when Erbitux was used by itself, delaying tumor growth by 1.5 months. When used in conjunction with a standard treatment irinotecan, 22.9% of patients responded and tumor growth was delayed by approximately 4.1 months.
In September 2001, Bristol-Myers Squibb committed $2 billion (including a $1 billion up-front cash payment) for less than 20% of ImClone due to what was called at the time the drug's "blockbuster" potential.
In January 2006, the company was put up for sale but failed to find any buyers, likely because Erbitux by that time faced significant competition in the medical marketplace. ImClone directors withdrew the sale of the company in mid-2006.
In April 2009, Eli Lilly and Company purchased ImClone Systems Inc. for an estimated $6.8 billion.
On March 3, 2003, he pleaded guilty to charges of conspiracy and wire fraud for avoiding $1.2 million in sales taxes on $15 million in artwork. The art included works by Mark Rothko, Richard Serra, Roy Lichtenstein, and Willem de Kooning, purchased between June 2000 and October 2001. He did not pay the necessary taxes at the time of purchase, but paid in fall 2002.
On June 10, 2003, Waksal was sentenced to seven years and three months in prison and ordered to pay more than $4 million in fines and back taxes, all the maximum punishments allowable under law. Waksal was released in 2009.
On June 4, 2003, a federal grand jury in Manhattan indicted Stewart and her former broker, Peter Bacanovic, on nine criminal counts. The government alleged that, by selling when she did, Stewart avoided losses of $45,673. The charges included securities fraud, obstruction of justice, and conspiracy. Stewart pleaded not guilty, saying she had a standing order with Bacanovic to sell her shares if ImClone stock fell below $60. Stewart resigned as CEO and chairman of Martha Stewart Living Omnimedia on the same day she was indicted, but remained on the company's board.[2]
The day after her indictment, Stewart took out a full-page advertisement in USA Today and launched a website with an open letter of defense "to my friends and loyal supporters." She said, "I want you to know that I am innocent—and that I will fight to clear my name... The government's attempt to criminalize these actions makes no sense to me... I am confident I will be exonerated of these baseless charges."
Stewart's trial was initially set for January 12, 2004, at the request of her lawyers who said they needed more time to analyze the evidence. The trial eventually began on January 20 in New York City presided over by U.S. District Judge Miriam Goldman Cedarbaum.[6] During the trial, Stewart maintained her innocence.[7]
On February 27, 2004, Judge Cederbaum dismissed the charge of securities fraud, which could have led to up to ten years in prison and a $1 million fine. The judge found that "no reasonable juror can find beyond a reasonable doubt that the defendant lied for the purpose of influencing the market for the securities of her own company."[8]
Verdict
The jury deliberated for three days following the five-week trial. On March 5, 2004, Stewart was found guilty by the jury of eight women and four men on all four remaining counts: conspiracy, obstruction of justice, and two counts of making false statements to a federal investigator.[9] She was found not guilty of one of the most publicized charges: having falsely claimed that there was an agreement to sell her shares when they fell to $60. The jury found that Stewart lied and obstructed justice on other grounds, including her claim that she was reminded of the prior $60 agreement and urged to sell on that basis.
Following the jury verdict, a message was posted on her website, reading, in part:
I am obviously distressed by the jury's verdict but I continue to take comfort in knowing that I have the confidence and enduring support of my family and friends. I will appeal the verdict and continue to fight to clear my name. I believe in the fairness of the judicial system and remain confident that I will ultimately prevail.
Sentencing
On July 8, a motion for a new trial was denied and sentencing was set for July 16. Stewart and Bacanovic were each sentenced to five months in prison, five months of home confinement, and two years' probation for lying about a stock sale, conspiracy, and obstruction of justice. Stewart was ordered to pay a $30,000 fine, while Bacanovic was fined $4,000. The judge stayed the sentence while they prepared their appeals.[10]
On September 15, 2004, accompanied by her lawyers and members of the board of directors of Martha Stewart Living Omnimedia, Stewart held a press conference to announce her decision to begin serving her sentence as soon as possible while vowing to continue ahead with her appeal.[11] The event was featured live on national television. On September 21, Judge Miriam Cedarbaum ordered her to surrender by October 8. On September 29, the Federal Bureau of Prisons announced that Stewart would serve her sentence at the federal prison camp near Alderson, West Virginia, denying her request to serve it at the federal prison in Danbury, Connecticut.[12][13] She reported to Alderson Federal Prison Camp early in the morning on October 8.[14] Alderson is a minimum security prison, the lowest level of security in the Bureau of Prisons.[12] There are no fences, and inmates are generally free to walk around the compound unescorted. Stewart, who said her prison nickname was "M. Diddy",[15] reportedly got along quite well with her fellow inmates and kept herself busy with assigned cleaning tasks. She was released on March 4, 2005.[16][17][18][19]
After being released from Alderson, Stewart began her home confinement at her estate in Bedford, New York. During the confinement, she was permitted to leave her property for up to 48 hours a week to conduct business, but was required to wear an electronic ankle monitor to monitor her location at all times. On January 6, 2006, a Federal Appeals court denied Stewart's appeal and upheld the jury's verdict.[20][21]
Repercussions and aftermath
On March 8, 2004, Viacom pulled Martha Stewart Living from its CBS and UPN affiliates, after having moved the show during Stewart's trial from prime daytime timeslots into less desirable early-morning slots (e.g., 2:05am in New York); the show was distributed by another Viacom division, King World Productions.[22] On March 15, Stewart resigned from the board of Martha Stewart Living Omnimedia. Stewart had already resigned from the boards of The New York Stock Exchange and Revlon Cosmetics.[23][24] On May 18, MSO announced that Martha Stewart Living, was going into hiatus, with no announced date of return.[25]
On May 21, 2004, Larry Stewart (no relation), a United States Secret Service lab director who testified for the government against Martha Stewart, was charged with two counts of perjury. Stock in Martha Stewart Living Omnimedia jumped as much as 23 percent on the news. Larry Stewart was an expert witness about the ink on a broker's worksheet, testifying that the note about selling ImClone shares when it dropped below $60 was different from the rest of the ink on the document. The charges arose when Susan Fortunato, a Secret Service co-worker, complained that she had in fact done the analysis and that it had never been examined by Stewart. Although the jury at the perjury trial felt that Larry Stewart had taken unfair credit for the work done, it did not amount to perjury and he was found not guilty on October 5, 2004. The jury had trouble believing Fortunato, feeling that she had an axe to grind with Stewart.[26]
In June 2008, the UK Border Agency, operational since April 1, 2008, with new rules to safeguard British borders, refused to grant her a visa to enter the United Kingdom, because of her criminal conviction for obstructing justice. She had been planning to speak at the Royal Academy on fashion and leisure industry matters.[29]
In August 2006, the Securities and Exchange Commission announced that it had agreed to settle the related civil case against Stewart. Under the settlement, Stewart agreed to a five-year bar from serving as a director, or as the CEO, CFO (or other officer roles in which she would be responsible for preparing, auditing, or disclosing financial results), of any public company. She also agreed to pay the maximum penalty of three times the losses she avoided, or $195,000. Bacanovic agreed to pay penalties totaling about $75,000, and was barred associating with a broker, dealer or investment adviser.[30][31]
Perjury is the intentional act of swearing a false oath or falsifying an affirmation to tell the truth, whether spoken or in writing, concerning matters material to an official (federal) proceeding.
ImClone Systems Incorporated was a biopharmaceutical company dedicated to developing biologic medicines in the area of oncology. It was founded in 1984 and had its corporate headquarters in Bridgewater, New Jersey, and its research headquarters in New York City. On October 6, 2008, it accepted a $6.5 billion acquisition offer from Eli Lilly and Company, and became a fully-owned subsidiary of Eli Lilly and Company on November 24, 2008. Prior to the acquisition, it was traded on the NASDAQ stock exchange under the symbol IMCL. Imclone lost its separate identity in 2014 when its former ImClone research and manufacturing sites were renamed Eli Lilly and Company.
Samuel D. Waksal is the founder and former CEO of the biopharmaceutical company ImClone Systems. He is also the founder of Kadmon Pharmaceuticals, which was financed with private capital and commenced operations in New York City in 2010. At ImClone, Waksal led the company to develop the cancer drug Erbitux (cetuximab). During the course of its review process with the Food and Drug Administration (FDA) Waksal became involved in an insider trading scandal revolving around improper communications with personal friends and family members. He was convicted of several securities violations, served time in federal prison, and was released.
Martha Helen Stewart is an American retail businesswoman, writer, and television personality. As the founder of Martha Stewart Living Omnimedia, focusing on home and hospitality, she gained success through a variety of business ventures, encompassing publishing, broadcasting, merchandising and e-commerce. She has written numerous bestselling books, was the publisher of Martha Stewart Living magazine and hosted two syndicated television programs: Martha Stewart Living, which ran from 1993 to 2004, and The Martha Stewart Show, which ran from 2005 to 2012.
Obstruction of justice, in United States jurisdictions, is an act that involves unduly influencing, impeding, or otherwise interfering with the justice system, especially the legal and procedural tasks of prosecutors, investigators, or other government officials. Common law jurisdictions other than the United States tend to use the wider offense of perverting the course of justice.
Meg Scott Phipps is an American former politician who served as the Commissioner of Agriculture for the state of North Carolina from 2001 to 2003.
Jeffrey Keith Skilling is an American businessman who in 2006 was convicted of federal felony charges relating the Enron scandal. Skilling, who was CEO of Enron during the company's collapse, was eventually sentenced to 24 years in prison, of which he served 12 after multiple appeals.
Susan Carol McDougal is a real estate investor who served prison time as a result of the Whitewater controversy.
The Bay Area Laboratory Co-operative (BALCO) was an American company that operated from 1983 to 2003 led by founder and owner Victor Conte.
The LaRouche criminal trials in the mid-1980s stemmed from federal and state investigations into the activities of American political activist Lyndon LaRouche and members of his movement. They were charged with conspiring to commit fraud and soliciting loans they had no intention of repaying. LaRouche and his supporters disputed the charges, claiming the trials were politically motivated.
Martha Stewart Living Omnimedia Inc. (MSLO) is a diversified media and merchandising company founded by Martha Stewart and owned by Marquee Brands LLC since April 2019. It is organized into four business segments: publishing, Internet, broadcasting media platforms, and merchandising product lines. MSLO's business holdings include a variety of print publications, television and radio programming, and e-commerce websites.
Cetuximab, sold under the brand name Erbitux, is an epidermal growth factor receptor (EGFR) inhibitor medication used for the treatment of metastatic colorectal cancer and head and neck cancer. Cetuximab is a chimeric (mouse/human) monoclonal antibody given by intravenous infusion.
Greg F. Anderson is an American personal trainer, best known for his work with baseball player Barry Bonds, and links with BALCO.
Denny Chin is a senior United States circuit judge of the United States Court of Appeals for the Second Circuit, based in New York City. He was a United States District Judge of the United States District Court for the Southern District of New York before joining the federal appeals bench. President Bill Clinton nominated Chin to the district court on March 24, 1994, and Chin was confirmed August 9 of that same year. On October 6, 2009, President Barack Obama nominated Chin to the Second Circuit. He was confirmed on April 22, 2010, by the United States Senate, filling the vacancy created by Judge Robert D. Sack who assumed senior status. Chin was the first Asian American appointed as a United States District Judge outside of the Ninth Circuit.
Linda Taylor was an American woman who committed extensive welfare fraud and, after the publication of an article in the Chicago Tribune in fall 1974, became identified as the "welfare queen". Accounts of Taylor's activities were used by then-presidential candidate Ronald Reagan, for his 1976 presidential campaign onwards, to illustrate his criticisms of social programs in the United States. Her criminal activities are believed to have extended beyond welfare fraud and may have included assault, theft, insurance fraud, bigamy, kidnapping, and possibly even murder.
"Tone at the top" is a term that originated in the field of accounting and is used to describe an organization's general ethical climate, as established by its board of directors, audit committee, and senior management. Having good tone at the top is believed by business ethics experts to help prevent fraud and other unethical practices. The very same idea is expressed in negative terms by the old saying "A fish rots from the head down".
Marilyn Mosby is an American politician and lawyer who served as the State's Attorney for Baltimore from 2015 to 2023. Mosby gained national attention following the killing of Freddie Gray in 2015, after which she led a highly publicized investigation and unsuccessful murder prosecution of the police officers who arrested and transported Gray.
United States v. Elizabeth A. Holmes, et al., was a United States federal criminal fraud case against the founder of now-defunct corporation Theranos, Elizabeth Holmes, and its former president and COO, Ramesh Balwani. The case alleged that Holmes and Balwani perpetrated multi-million dollar wire-fraud schemes against investors and patients. Holmes and Balwani each had their own jury trial.
↑ United States v. Stewart (Stewart I), 305 F. Supp. 2d 368, 378 (S.D.N.Y. 2004).
↑ "Stewart Asks to Start Prison Sentence; She says she wants to put this behind her so she can move on with her life and career", Los Angeles Times, September 16, 2004.
1 2 "Martha's new digs; Judge assigns Stewart to minimum security facility in West Virginia" (September 30, 2004) Beaumont Enterprise, Beaumont, Texas.
↑ "Welcome to 'Camp Cupcake'; Alderson Residents Ready for Latest Celebrity Inmate" (October 4, 2004) Hartford Courant, Hartford, Connecticut.
↑ "Martha Stewart reports to prison, Entrepreneur arrived at Alderson at 6:15 a.m., says she wants to get 'nightmare' behind her" (October 8, 2004) Charleston Daily Mail, Charleston, West Virginia.
↑ "Martha and the pros of being a con; They say that crime doesn't pay. But during the five months that America's domestic goddess has spent in prison for insider dealing, the value of her company has tripled. David Usborne reports on a very lucrative rehabilitation" (March 4, 2005) Belfast Telegraph, Belfast.
↑ "Town Gets Ready for Stewart's Departure" (March 4, 2005) The Augusta Chronicle, Augusta, Georgia.
↑ "Martha Stewart Living: No Bars; While Doyenne Serves Sentence, Stock Surges On Hopes for New Projects" (March 4, 2005) Asian Wall Street Journal, Victoria, Hong Kong.
↑ "Coming home to 'a good thing' " (March 4, 2005) The Atlanta Journal–Constitution, Atlanta, Georgia.
↑ United States v. Martha Stewart and Peter Bacanovic,433F.3d273(2d Cir.2006-01-06).
↑ "Martha Stewart loses appeal of conviction" (January 6, 2006) UPI NewsTrack, Washington.
↑ "TV SHOW: Viacom stations drop 'Martha Stewart Living' " (March 9, 2004) Chicago Tribune, Chicago, Illinois.
↑ "Martha Stewart Resigns from Board of NY Stock Exchange" (October 4, 2002) St. Louis Post–Dispatch, St. Louis, Missouri.
↑ "Omnimedia shares continue descent: Stewart resigns from Revlon board" (March 9, 2004) The Gazette, Montreal, Quebec.
↑ "Plug pulled on Martha TV" (May 19, 2004) National Post, Don Mills, Ontario.
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