A Nov. 22 article incorrectly reported that Michael Milken had been sentenced for insider trading. Milken served 22 months in prison after pleading guilty to securities fraud in 1990. (Published 11/23/02)
When ImClone Systems Inc. founder Samuel Waksal returns to court in January, he is scheduled to become the first high-profile defendant to be sentenced in the current wave of corporate scandals, and federal prosecutors have signaled that they will take a tough but controversial approach.
U.S. Attorney James B. Comey's office has decided to ask Judge William H. Pauley III to give Waksal extra prison time for crimes he was not convicted of committing, according to sources. Prosecutors plan to invoke a sentencing guideline that has drawn criticism from civil libertarians, who say it undermines the concept of guilt beyond a reasonable doubt, but has survived legal challenges.
The rule, although often applied in narcotics cases, has rarely been used against high-profile white-collar defendants because their attorneys generally cut deals with prosecutors to limit the facts considered at sentencing. But Waksal pleaded guilty in October to six counts, including insider trading, bank fraud and perjury, without a plea agreement.
Federal prosecutors therefore decided to ask the court to consider the seven other charges of conspiracy and securities fraud in sentencing, although the government has never proved them in a court of law, according to sources. The case is being closely watched because the judge's decision may serve as a bellwether for how harshly courts will deal in general with white-collar defendants, legal analysts said.
"The climate is such that judges and the public are becoming harsher on this sort of thing," said former prosecutor Ronald J. Nessim.
If the prosecutors' strategy succeeds, Waksal's sentence could rise from the seven to nine years prosecutors predicted he would get to 10 to 12 years, according to calculations by Indiana University law professor Frank Bowman, who helped write a revision of the federal sentencing guidelines last year.
Waksal's attorneys will probably argue that his sentence should be six years or less, by asserting that he's not guilty of the other charges and deserves credit for "acceptance of responsibility," outside legal experts said.
Waksal lawyer Mark Pomerantz declined to comment on his strategy, but he said, "The notion of a sentence that approaches 10 to 12 years is utterly ridiculous. It's not that kind of case."
By comparison, Michael Milken initially received a 10-year sentence for gleaning millions of dollars in insider trading but served 22 months and kept a fortune estimated at $125 million after a judge reduced his sentence.
A spokesman for the U.S. attorney's office declined to comment on the case.
The ImClone insider-trading case has made tabloid headlines all year because of Waksal's social prominence and his ties to lifestyle maven Martha Stewart, who is under SEC investigation for selling shares of ImClone the same day Waksal family members did.
Waksal admitted trying to sell ImClone stock last December after learning that the New York company's heralded cancer drug was about to be rejected by the Food and Drug Administration. He also admitted telling his daughter Aliza to sell stock. But he denied tipping off his father, Jack, and has said his daughter did not know why he wanted her to sell. Jack Waksal's lawyer declined to comment. Aliza Waksal's attorney did not return phone messages.
ImClone shares tanked after the FDA announcement, falling to $46.36 after the market reopened, down 37 percent from their high of $73.83 in early December. They closed yesterday at $14.97.
Federal sentencing guidelines are supposed to add uniformity to the sentencing process by establishing point values for all kinds of offenses, although the severity can be influenced by other factors such as violence or size of a scam. For instance, the size of the penalty for insider trading or securities fraud can depend on such things as the amount of money involved and the number of participants. Defendants can cut their total by pleading guilty and working with prosecutors.
The Waksal case is harder to predict because of Waksal's highly unusual decision to plead guilty to some counts even though he and prosecutors were unable to agree on a deal. His high-stakes gamble may succeed in ending the case without dragging in his family, but he also could get slammed at sentencing.
"The nutty plea here is really the problem. A [plea agreement] deal was never completed," said Stanford University law professor Robert Weisberg. "This comes down to throwing yourself on the mercy of the court."
Assistant U.S. Attorney Michael Schachter said in court that prosecutors are still considering whether to take the other seven charges to trial after the sentencing.
"The government wishes to make sure that Dr. Waksal is held accountable for all of the criminal conduct that he engaged in, not just that conduct to which he has pled guilty," he told Pauley.
But for now, prosecutors plan to ask Pauley to classify all of the unresolved charges as "relevant conduct," sources said.
That way prosecutors can argue that a "preponderance of the evidence" shows that Waksal committed two counts of conspiracy and five extra counts of insider trading and his sentence should be increased.
The relevant conduct rule is often used in narcotics cases to hold individuals responsible for all the drugs their gangs sold, even though they have only personally pleaded guilty to one sale.
"Relevant conduct allows punishment for things a person may or may not have done . . . which undermines the criminal justice system," said Emory University law professor Marc Miller, who nonetheless noted that the doctrine has withstood legal challenges. "Anybody who thinks the criminal justice system punishes only for actions proven beyond a reasonable doubt has been out of touch for 15 years."
Former prosecutor Robert Mintz said Waksal's attorneys can fight the enhanced sentence by arguing their client is not guilty of the other charges and by pointing out that he pleaded guilty to everything that did not involve turning on his family.
"Waksal's going to bank on public opinion saying, 'Enough is enough, he's fallen on his sword and taken all the blame,' " Mintz said. "He's [hoping] the government will take three-quarters of a loaf and go home."
But University of Pennsylvania law professor Peter Huang said public opinion may be a problem for ImClone's founder because he will be the first major defendant to be sentenced in the business scandals. Prosecutors "may want to use this case to signal that they are tough on white-collar crime. In this day and age, they may want to make him an example," Huang said.