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More Arrests In ImClone Scandal

Waksal Friends Charged With Insider Trading

By Carrie Johnson
Washington Post Staff Writer
Thursday, March 10, 2005; Page E01

Two former close associates of imprisoned ImClone Systems Inc. founder Samuel D. Waksal were arrested yesterday on criminal conspiracy and securities fraud charges in connection with their sales of the company's stock just before bad news was announced.

Zvi Fuks, chairman of the department of radiation oncology at New York's Memorial Sloan-Kettering hospital, and Sabina Ben-Yehuda, an executive of an investment company connected to Waksal, were arrested on charges that they made trades after they were tipped off to bad news by the biotechnology company's founder. The arrests came days after Martha Stewart returned from serving time in a federal prison for obstructing an investigation into her sale of ImClone stock.

_____Martha Stewart Coverage_____
The Great S-Cape: Martha's Prison Poncho Is a Big Hit (The Washington Post, Mar 11, 2005)
Do Good in Martha's Name (The Washington Post, Mar 8, 2005)
Stewart Goes Back to Work (The Washington Post, Mar 8, 2005)
Complete Trial Background
_____Biotech Headlines_____
U.N. Backs Human Cloning Ban (The Washington Post, Mar 9, 2005)
Conservatives Draft a 'Bioethics Agenda' for President (The Washington Post, Mar 8, 2005)
Stewart Goes Back to Work (The Washington Post, Mar 8, 2005)
More Biotech News

Waksal, who is serving an 87-month sentence at Schuylkill Federal Correctional Institution in Minersville, Pa., provided grand jury testimony against Fuks and Ben-Yehuda last month, according to court papers.

The charges against Fuks and Ben-Yehuda, who court papers say had a "close personal relationship," were lodged in a criminal complaint by federal prosecutors in Manhattan. The Securities and Exchange Commission filed related civil insider-trading charges against both defendants yesterday, alleging that they took advantage of advance knowledge that federal regulators had rejected ImClone's application to sell Erbitux, its leading cancer drug.

"It is unfortunate the government has chosen to pursue this case three years after the facts on the word of an admitted liar," said Stephen Fishbein of Shearman & Sterling LLP, a lawyer for Ben-Yehuda. Lawyers for Fuks did not return calls, but they told Bloomberg News that they would fight the charges.

Court papers released yesterday suggest that the defendants had multiple conversations between 5:59 a.m. and 9:08 a.m. on Dec. 27, 2001, including several calls to or from Waksal.

Waksal allegedly tipped off Ben-Yehuda, who on Waksal's advice then called Fuks to share the bad news, according to court papers. Fuks was on ImClone's advisory board in December 2001.

That morning Fuks, a prominent cancer doctor who met Waksal more than three decades ago, sold 89,173 shares of ImClone stock, for proceeds of $5.3 million. Ben-Yehuda, who worked at Scientia, a company Waksal created to make investments in emerging biotechnology firms, sold 1,178 shares for proceeds of $73,453, U.S. Attorney David N. Kelley said.

Both defendants avoided thousands of dollars in losses in the stock by selling on the inside tip, the government alleged. ImClone's share price fell more than 16 percent after the company revealed that the Food and Drug Administration had rejected its application for the Erbitux cancer drug after the close of business Dec. 28, 2001. The agency eventually cleared the drug, in February 2004.

In his recent grand jury testimony, Waksal apparently implicated both defendants and described conversations in which they expressed concern that investigators would learn of the improper tips.

"Waksal had a conversation with Ben-Yehuda, who stated that she and Fuks were worried because they were aware Waksal was under investigation and had concerns about what Waksal might say," according to the criminal complaint signed by FBI Special Agent David Makol. "Ben-Yehuda asked whether Waksal was going to protect her and Fuks. Waksal replied that he would."

Federal securities regulators also sued Fuks and Ben-Yehuda yesterday, seeking disgorgement of profits and unspecified civil penalties.

"The commission punishes insider trading whenever it occurs and will not allow anyone to profit from it," said Bruce Karpati, an assistant regional director in the SEC's New York office.

Fuks, 68, continues to work at Memorial Sloan-Kettering, a hospital spokeswoman said yesterday afternoon.


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