by John M. Curtis
(310) 204-8700

Copyright August 13, 2002
All Rights Reserved.

leading "not guilty" to insider trading, bank fraud, perjury and obstruction of justice, the 54-year-old jet-setting founder and CEO of high-flying biotech ImClone Systems, Samuel D. Waksal, showed little contrition at his arraignment in lower Manhattan federal court. Free on a $10 million bond, Waksal finally broke his silence, telling reporters that he wanted to give his side of the story. "My attorneys and I look forward to addressing these charges in the appropriate forum, the courts," said the unrepentant physician-turned-entrepreneur, whose stock scandal sent chills through Wall Street, dragging down his socialite buddy Martha Stewart. Like Waksal, Stewart also faces charges for insider trading, perjury, and obstruction of justice, refusing, so far, to testify or turn over requested documents to a congressional committee. ImClone's mischief pushes ordinary Wall Street scandals into the sleaze zone of corporate malfeasance.

      Since going public in 1987, ImClone, under Waksal's direction, dedicated his company to finding a revolutionary cure for cancer. With the backdrop of science's race to map the human genome, Waksal raised serious expectations—and cold hard cash—promising a high-tech genetically engineered cure for cancer. "Whatever happens to me, I know that this breakthrough therapy will one day make a real difference in the lives of many gravely ill people," read Waksal, in a carefully scripted statement designed to begin the arduous process of damage control. But Waksal's great optimism about the future of cancer treatment says nothing about his "miracle drug" Erbitux on which he staked his company's future. When the FDA rained on his parade signaling in early December that they would formally reject Erbitux on Dec. 28, Waksal showed little faith. Once Waksal got the news from his brother after returning from the Bahamas, he promptly notified his father and daughter who unloaded $10 million in stock.

      Waksal also tried to dump thousands of shares by transferring ownership to his daughter, hoping to profit from ImClone's inflated market value before the FDA's catastrophic announcement on Dec. 28. Curiously, Waksal's fellow New York socialite Martha Stewart liquidated 3,928 shares on Dec. 27, denying that she was given insider information, claiming falsely that she had a standing "stop-loss" order with her Merrill-Lynch broker Peter Bacnovic and his assistant Douglas Faneuil, despite the stock falling below her $60 stop-loss threshold in November. Faneuil told Justice Department investigators that he informed Stewart that Waksal was dumping his shares on the orders of his boss—a charge Bacnovic vigorously denies. Other than pure unadulterated greed, Stewart's behavior is truly inexplicable. Worth hundreds of millions, why would Stewart risk her billion-dollar media empire—and indeed her freedom—for a measly $235 grand?

      Analyzing Waksal's move points to less benign—or plain self-destructive—explanations. Most biotech companies don't put all their eggs in one basket—namely, Erbitux. Yet Waksal apparently believed that ImClone's survival totally depended FDA approval. If Waksal really believed in Erbitux he wouldn't have tried to liquidate his holdings, essentially throwing the company into a death spiral. Claiming now that he believes in "breakthrough therapy," makes no mention of his actual belief in Erbitux—a drug the FDA apparently found worthless. Since 1987 when ImClone went public, Waksal produced numerous scientific studies proving the clinical value of Erbitux as a "breakthrough" genetically-engineered cancer drug. Waksal's "cut-and-run" approach tells the real story. When push came to shove, Waksal knew that his own research grossly overstated the efficacy of Erbitux as a "breakthrough" cancer therapy. Dumping his shares proved that he bailed on his own company, knowing that Erbitux had no real future other than hot air.

      Unlike oil ventures, bio-tech companies prey on hopes of investors who believe in lofty humanitarian goals like finding cures for cancer and other dreaded diseases. Waksal, a licensed physician, commanded impressive credibility, not disclosing his proclivity toward extravagance and self-indulgence. "I believe the drug Erbitux, which I have worked to bring to the public for over 10 years, has the potential to help millions of cancer patients," read Waksal in a carefully prepared statement following his arraignment. While vetted carefully by the FDA, Waksal insists that they badly miscalculated the true clinical worth of Erbitux. In reality, the real value of Erbitux gave Waksal and his family a license to dupe investors, generating untold millions to support his upper Eastside lifestyle. No committed entrepreneur or serious scientist would throw in the towel simply because the FDA gave thumbs down the first time around. Dumping his stock told the story behind Waksal's real feelings about Erbitux and ImClone.

      Signing corporate responsibility bills won't eradicate garden-variety psychopaths looking for riches on Wall Street's yellow brick road. Investors need to be especially cautious of well-credentialed entrepreneurs promising the world but offering nothing more than cleverly packaged snake oil. There's no shortage of con artists in the biotech industry where clever pitchmen whip naïve investors into a lather over exciting "breakthroughs" and "miracle cures." "This is an extremely simple and straightforward case," said U.S. Assistant U.S. Atty. Michael Schachter, believing the government has a strong case against Waksal for insider trading, bank fraud, perjury and obstruction of justice. But Waksal won't be prosecuted for violating professional ethics or misusing his credentials to dupe hapless investors into believing fantasies about "miracle" cancer cures. "I founded ImClone in order to discover important new drugs to meet unmet medical needs of society," said Waksal, blowing more smoke than a carnival huckster—as if that explains why tried to cash out.

About the Author

John M. Curtis writes politically neutral commentary analyzing spin in national and global news. He's a consultant and expert in strategic communication. He's author of Dodging The Bullet and Operation Charisma.

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