Of the scandals hitting Wall Street, only ImClone’s makes it into the society pages. But Martha Stewart is not the only stockholder of the biotech firm who is coming under suspicion for possible insider trading. Documents obtained by TIME show dumping of ImClone stocks by its executives that dwarfed Stewart’s $228,000 sale. And their trading preceded Stewart’s by weeks, starting just after Food and Drug Administration (FDA) officials met privately with an ImClone vice president last Dec. 4 and informally signaled there could be licensing problems for the company’s cancer drug Erbitux. The FDA formally turned down a review of the drug on Dec. 28, a day after Stewart traded her shares.
ImClone general counsel John Landes initiated the sales binge on Dec. 6, when he instructed his broker to unload $2.5 million worth of company stock, according to sell orders drafted by Merrill Lynch. Five days later, Ronald Martell, vice president for marketing, had Merrill Lynch sell $2.1 million worth of his company stock. Four other executives–including two vice presidents–cashed in an undetermined number of their shares between Dec. 12 and Dec. 21, when the company imposed a blackout on employee stock trading.
House Energy and Commerce Committee spokesman Ken Johnson confirmed the sales. Chairman Billy Tauzin, who is leading an investigation of ImClone with Representative Jim Greenwood, says the timing deepens suspicions of illegal insider trading. “Everyone but the mailroom boy was dumping stock,” Tauzin told TIME. “You can’t tell me they all suddenly had a hunch to sell.”
A spokesman for Landes said he notified his broker a month before the Dec. 4 FDA meeting that he planned to sell. But investigators question why he waited until Dec. 6 to execute the trade. Martell did not return calls for comment.
Landes, the ImClone official with veto power over internal stock trading, has become a central focus of investigators, sources tell TIME. On the night of Dec. 26, he spent 17 minutes on the phone with CEO Sam Waksal, records show. Waksal had just learned that the FDA would announce its negative decision on Erbitux in two days. Later that night Waksal drafted a note, marked “Urgent–Immediate Attention Required,” to his Merrill Lynch broker, Peter Bacanovic, sources say. Stopped from trading by the firm’s blackout, Waksal gave instructions to transfer $4.9 million in stock to the account of his younger daughter Aliza Waksal. At 8:30 the next morning, he called Aliza, phone records show. She called Bacanovic’s aide at 9 a.m with orders to sell $2.5 million of her own ImClone stock, sources say. Sam Waksal then tried to sell the shares he had transferred to her, but he was blocked by Merrill Lynch.
Phone records are also helping investigators pin down just how Stewart may have been tipped off to FDA plans before selling her shares Dec. 27. Sources say her assistant has signed an affidavit revealing that Bacanovic, who was also Stewart’s broker, called Stewart’s office between 10 a.m. and 11 a.m. on Dec. 27, shortly after Aliza’s shares were dumped, and left a message that “ImClone is going to start trading downward.” Stewart called Bacanovic’s office at 1:30 p.m. Her stock was sold 10 minutes later, sources say. Stewart has denied that she engaged in any improper trading.
Bacanovic must provide his phone records subpoenaed by Tauzin’s panel. Only Sam Waksal has been charged with insider-trading offenses–which he denies. He may face new questions over an unsecured $282,200 loan he received from ImClone. He signed a promissory note in December 2000, records show. Two months later, the loan was approved by the executive committee of ImClone’s board, sources say. That group consisted of him, his brother Harlan Waksal and a third member associated with a firm that had a $400,000-a-year contract to manage ImClone’s debt. Sam Waksal’s spokesman said the loan was paid off.
–By Michael Weisskopf
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