Samuel D. Waksal, the founder and former chief executive of ImClone Systems, agreed Tuesday to settle a civil complaint by securities regulators who say that he not only tried to sell ImClone shares improperly but also arranged to profit from the stock's decline.
A new charge included in the settlement with the Securities and Exchange Commission, which called it a "partial resolution" of the case, accuses Waksal, 55, of purchasing 210 put options on ImClone stock through a Swiss brokerage account Dec. 28, in which he bet that the ImClone share price would drop as low as $50 the next month. He netted $130,000 by selling the options as the price of ImClone plummeted during the next few days, and did not disclose the activity to other shareholders or the SEC at the time.
He had learned Dec. 26 that the company's application for approval of a promising cancer drug had been rejected by the Food and Drug Administration, which ImClone did not make public until after the stock market closed Dec. 28. The news sent ImClone's share price into a steep fall Dec. 31, the next trading day.
"These transactions demonstrate that he not only tried to avoid losses from ImClone's bad news, but he also tried to profit from it," said Helene Glotzer, assistant regional director of the SEC's New York branch.
Under SEC regulations, Waksal, an ImClone insider, would have been required to disclose the position he took, just as he would have had to disclose the purchase or sale of any ImClone stock. Since 1934, senior executives at public companies have been barred from shorting their own company's stock under the statute known as Section 16.
Put options are treated as derivatives, not as stock, but "this was exactly the kind of speculative abuse that Section 16 was intended to prevent," said Joel Seligman, dean of the Washington University School of Law and an expert on securities law. Waksal bought the put options, which were handled from an account at Discount Bank & Trust AG of Geneva.
Waksal will pay $800,000 to the SEC and will be barred for life from serving as an officer or director of a public company under the terms of the settlement announced Tuesday. He admitted no wrongdoing, but has pleaded guilty to overlapping charges in a criminal case stemming from some of the same ImClone trades.
Lewis R. Liman, a lawyer for Waksal, issued a brief statement that said: "We are glad that we have been able to reach this settlement with the SEC, and that Dr. Waksal will be able to put this part of the legal issues behind him."
The case against him began with his attempted trading of ImClone stock and his urging of family members to sell their shares during late December 2001. On June 12, he was charged in a criminal complaint as well as an SEC complaint, and was indicted on 13 counts in August. He pleaded guilty to six of the counts in October; the rest have been dropped as part of his plea agreement.
Whether the SEC would pursue its other charges against Waksal, which include the accusation that he told his father to sell ImClone shares, remains an open question. In the criminal case, Waksal did not plead guilty to any charges involving his father, who sold 136,000 ImClone shares Dec. 27 and Dec. 28.
Waksal has already pleaded guilty to a raft of federal securities fraud, perjury and obstruction of justice charges.