Tangled Webs (11 page)
Authors: James B. Stewart
Tags: #History, #United States, #General, #Law, #Ethics & Professional Responsibility
After Faneuil’s interview, ImClone responded to government subpoenas for phone records and phone logs. As the lawyers pored over the data, they noticed calls from prominent financier Carl Icahn and Jason Bonadio from legendary hedge fund SAC Capital along with a call from Stewart at 1:34 p.m., just minutes after selling her stock. The message entered by Waksal’s secretary read: “Martha Stewart. Something is going on with ImClone and she wants to know what. She is on her way to Mexico. She is staying at Los Ventanos [
sic
].”
sic
].”
The lawyers were startled. This seemingly shattered the $60 story and the idea that Stewart and Bacanovic had tried so hard to project, which was that Stewart’s sale the day before a major announcement was coincidence. Stewart knew that “something is going on with ImClone.” At the same time, she didn’t know exactly what was going on. She evidently didn’t know that Erbitux had been rejected by the FDA, but she knew something.
It finally dawned on the lawyers that the information might be that the Waksals were selling their shares–not that Erbitux had been rejected by the FDA. After all, the Waksals and Stewart used the same broker. Bacanovic knew about their efforts. His insistence that he would never reveal one client’s trading to another hadn’t rung true. But how had Bacanovic conveyed this information to Stewart? Bacanovic was now saying he never spoke to her that day. Stewart said she did speak to him, but there were no phone records to support her claim. Had she used another as-yet-undiscovered phone at the airport to call Bacanovic?
Even more incriminating than the message itself was Stewart’s failure to mention it during her testimony. In narrating the events of that day, she had conveniently deleted the call to Waksal from her recollection of events at the airport. On the strength of this single message, Schachter called Stewart’s lawyers and said they needed to question Stewart once again, this time by phone. They agreed to a date of April 10.
The day before, on April 9, Stewart’s lawyers at Wachtell Lipton finally responded to the government’s request for records of calls to Stewart’s office on December 27, and specifically if Bacanovic had left a message. Less than twenty-four hours before her second interview, Stewart’s lawyers produced the phone log.
“Martha Stewart/NYC Messages. Thursday, December 27, 2001” was the heading. The log, in its entirety, read:
Plum pudding was excellent!Thank Mariana for Hanro!Peter Bacanovic thinks ImClone is going to start trading downward.Jean Pigozzi’s office asked if Daniel Wolf could be on your helicopter to the boat.Find fact sheet.Momoko wants to confirm a new date of Sunday, March 24, for shopping center opening in Japan.Jen Conine: source of 4 tabletop lamps and chaise longue in Starrett office.Gift of $25,000 to Barnard Annual Fund?
The government lawyers were electrified when they finally saw it. “Peter Bacanovic thinks ImClone is going to start trading downward.”
There was no mention of $60. Why did Bacanovic think ImClone would start trading downward? And why had both he and Stewart covered this up? Bacanovic had mentioned leaving a message with Stewart’s assistant, but nothing like this. Nor had Stewart said anything of the sort. The discovery only heightened the significance of Stewart’s second interview. Schachter and the other lawyers from the earlier interview were on the conference call, along with FBI agent Catherine Farmer and Laurent Sacharoff, the other SEC lawyer on the investigation. Stewart was again represented by John Savarese from Wachtell.
The government lawyers focused on the revelations in the two phone logs, starting with the one from Bacanovic. Stewart said “she didn’t recall seeing it, or that wasn’t the message that she recalled getting,” according to Helene Glotzer’s notes. “She said that she merely recalled Ms. Armstrong telling her that Mr. Bacanovic had called and wanted to speak with her before the end of the day.” Stewart then reiterated her earlier story about their conversation and her decision to sell when the stock dropped below $60.
Schachter asked specifically if Stewart knew that the Waksals were selling their shares. “Did you hear that any of the Waksals were selling their stock?”
“No, I have no recollection of being told that,” she replied.
“Do you have any recollection of calling and leaving a message for Sam Waksal?”
“No, but when I saw the message I realized I was calling him just to see how he was doing and make sure everything was okay.”
Schachter asked Stewart if she’d discussed the sale with anyone else on the trip to Mexico–either Pasternak or Sharkey–and she said she might have told Pasternak. She didn’t think she’d mentioned it to Sharkey.
Given the opportunity to correct earlier testimony and set the record straight, Stewart had dug herself in even deeper. But why? What were she and Bacanovic hiding? The government lawyers still lacked any direct evidence that Stewart had been tipped by Bacanovic. The government lawyers agreed to continue the investigation by interviewing Armstrong and Pasternak. In the meantime, the Waksal branch of the investigation was heating up.
O
n April 18, little more than a week after Stewart’s second interview, Sam Waksal arrived at the SEC’s New York offices for questioning. He’d been issued a subpoena, and was sworn to tell the truth. Earlier, his father, Jack Waksal, and his daughter, Aliza, had testified that neither had discussed ImClone shares with him. On March 5, Aliza maintained that she hadn’t spoken to her father on December 26 or 27 before placing her order to sell ImClone shares, hadn’t discussed any investment issues with him during her vacation in Sun Valley, and had interrupted her vacation (not to mention her sleep) to sell when she did because she needed $1.7 million for an apartment she was buying in Manhattan.
n April 18, little more than a week after Stewart’s second interview, Sam Waksal arrived at the SEC’s New York offices for questioning. He’d been issued a subpoena, and was sworn to tell the truth. Earlier, his father, Jack Waksal, and his daughter, Aliza, had testified that neither had discussed ImClone shares with him. On March 5, Aliza maintained that she hadn’t spoken to her father on December 26 or 27 before placing her order to sell ImClone shares, hadn’t discussed any investment issues with him during her vacation in Sun Valley, and had interrupted her vacation (not to mention her sleep) to sell when she did because she needed $1.7 million for an apartment she was buying in Manhattan.
Also under oath, Waksal’s father insisted that he hadn’t talked at all to his son on December 26, “never had a conversation about stock” with him, and “never spoke” to him “about ImClone.”
The phone records produced to the SEC told another story: Sam Waksal and his father exchanged five phone calls between 9:52 p.m. and 11:11 p.m. the night of December 26. The next morning, there were four calls between Waksal and Aliza between 6:27 a.m. and 7:46 a.m. (mountain time). Aliza called Merrill Lynch at 7:01 a.m. and 7:49 a.m., in both cases just minutes after hanging up with her father.
The SEC lawyers as well as Schachter at the U.S. Attorney’s office recognized that both the senior Waksal and Waksal’s daughter had likely committed perjury. Would Waksal himself, already deeply enmeshed in the insider trading scheme, now compound his difficulties by also lying under oath?
Glotzer handled the questioning.
“Dr. Waksal, I’m handing you what’s just been marked as Exhibit 114. Have you ever seen this document before?”
“Yes.”
“What is it?”
“It’s a request to transfer my Merrill account and shares of ImClone to Aliza.”
“And the second paragraph says, ‘It’s imperative this transfer take place tomorrow morning, December 27, first thing.’ Do you see that?”
“Yes.”
“Why was it so imperative that the transfer take place?”
“I believe this was just the way this was written, just to make sure that they would do it very quickly. Alan Goldberg [the accountant] was going away and I was making sure it was done immediately. I don’t believe that there was any imperative associated with it.”
Glotzer continued, “Why did you want to give [ImClone] shares to Aliza?”
“I had told Aliza that I was going to do that for her,” Waksal said. “I had told Aliza a couple of weeks before that–Aliza lived off of her ImClone. Aliza had no other real means of support, and I had told her when we talked earlier in December about her financial situation, that I was going to give her more ImClone stock that she could use to live on.”
“Did you ever instruct Jack Waksal or Aliza Waksal to sell their shares of ImClone?”
“No.”
“Did you ever suggest to any of them that they sell their shares of ImClone?”
“No.”
A
s the Waksal criminal investigation was nearing a climax, the House Energy and Commerce Committee announced it would hold hearings on the FDA’s handling of the Erbitux application, and specifically whether the secretive approval process and apparent leaks had fostered stock manipulation and insider trading. In May, Sam Waksal resigned as ImClone’s chief executive and a director, citing “recent events and the distractions they’ve caused.” He was succeeded as CEO by his brother Harlan. Then, on June 5, Theresa Agovino of the Associated Press reported that Sam Waksal had been subpoenaed and that “four of Waksal’s relatives sold a total of $400,000 in company stock before the news of the [Erbitux] rejection emerged, a source close to the investigation said, on condition of anonymity. Also, one of Waksal’s daughters reportedly sold $2.5 million in ImClone shares before the rejection.” The article continued, “Legal documents given to the committee show that domestic doyenne Martha Stewart also shed 3,000 ImClone shares. . . . Stewart’s spokesman said Stewart didn’t receive any inside information on ImClone.”
s the Waksal criminal investigation was nearing a climax, the House Energy and Commerce Committee announced it would hold hearings on the FDA’s handling of the Erbitux application, and specifically whether the secretive approval process and apparent leaks had fostered stock manipulation and insider trading. In May, Sam Waksal resigned as ImClone’s chief executive and a director, citing “recent events and the distractions they’ve caused.” He was succeeded as CEO by his brother Harlan. Then, on June 5, Theresa Agovino of the Associated Press reported that Sam Waksal had been subpoenaed and that “four of Waksal’s relatives sold a total of $400,000 in company stock before the news of the [Erbitux] rejection emerged, a source close to the investigation said, on condition of anonymity. Also, one of Waksal’s daughters reportedly sold $2.5 million in ImClone shares before the rejection.” The article continued, “Legal documents given to the committee show that domestic doyenne Martha Stewart also shed 3,000 ImClone shares. . . . Stewart’s spokesman said Stewart didn’t receive any inside information on ImClone.”
Buried in the story, with an offhand reference, it was the first public mention of any link between Stewart, Waksal, and trading in ImClone before the announcement.
The next day the
Wall Street Journal
picked up on the story, though it ran deep in the “Marketplace” section. “Martha Stewart Sold ImClone Shares–Timing Raises Questions, but There Is No Indication She Knew of FDA’s Decision,” the headline read.
Wall Street Journal
picked up on the story, though it ran deep in the “Marketplace” section. “Martha Stewart Sold ImClone Shares–Timing Raises Questions, but There Is No Indication She Knew of FDA’s Decision,” the headline read.
The
Journal
article, by reporters Chris Adams and Geeta Anand, contained a detailed rebuttal of any insider trading suspicions from Savarese, Stewart’s lawyer:
Journal
article, by reporters Chris Adams and Geeta Anand, contained a detailed rebuttal of any insider trading suspicions from Savarese, Stewart’s lawyer:
Stewart’s sale, involving about 3,000 shares of ImClone, occurred on December 26 or 27. The sale was executed, he said, because Ms. Stewart had a predetermined price at which she planned to sell the stock. That determination, made more than a month before that trade, was to sell if the stock ever went less than $60, he said. At the time of the sale, the stock was trading at about $60. As of 4:00 p.m. yesterday, ImClone shares tumbled $1.28, or about 15 percent, to $7.40 on the NASDAQ stock market.“There is absolutely no evidence whatsoever that she spoke to Sam, or had any information from anybody from ImClone during that week,” said the attorney, who added that he examined the trades when earlier news reports talked about the social connections between Ms. Stewart and Dr. Waksal. “I am absolutely sure that there was no communication of any kind between her and Sam, no passing of any information from him to her.”
This surprised Schachter and other lawyers in the Justice Department and at the SEC, since ordinarily lawyers decline comment on pending investigations or make a vague statement of innocence, preferring to develop the facts within the still private confines of the investigation. Here Savarese had denied any communications between Stewart and Waksal that week, which was technically true, although he made no mention of Stewart’s insistent call and message demanding to know what was going on with ImClone.
The
Journal
article quoted subcommittee chairman James Greenwood, Republican from Pennsylvania: “Our level of interest is very high. We’ve been tracking the precise chronology of the sales, and how that compares to who knew what and when. What we know is that if you make a trade because you know something that is not public and that other stockholders don’t know, that’s insider trading. And that’s what we want to take a look at.”
Journal
article quoted subcommittee chairman James Greenwood, Republican from Pennsylvania: “Our level of interest is very high. We’ve been tracking the precise chronology of the sales, and how that compares to who knew what and when. What we know is that if you make a trade because you know something that is not public and that other stockholders don’t know, that’s insider trading. And that’s what we want to take a look at.”
The story was a bombshell at the offices of Martha Stewart Omnimedia, where until then practically no one knew anything was amiss. When Stewart herself arrived that day, Sharon Patrick, the company’s chief executive, intercepted her and gave her a big hug in the corridor just outside her office, a conspicuous show of support. Now, suddenly, some employees were being told to get lawyers, including Ann Armstrong and Kevin Sharkey. Sharkey was spotted sobbing in Stewart’s office, his head on her desk.
Until then, it was ImClone’s stock price that had been getting all the attention. But the
Journal
article suddenly thrust another stock into the spotlight: Martha Stewart Omnimedia (MSO). To investors, Martha Stewart, the person, was indistinguishable from Martha Stewart, the brand, and Martha Stewart, the company. Few businesses relied so heavily on the talents and image of a single person. Should Stewart face criminal charges, the consequences could be dire.
Journal
article suddenly thrust another stock into the spotlight: Martha Stewart Omnimedia (MSO). To investors, Martha Stewart, the person, was indistinguishable from Martha Stewart, the brand, and Martha Stewart, the company. Few businesses relied so heavily on the talents and image of a single person. Should Stewart face criminal charges, the consequences could be dire.
The day the AP article appeared, on June 6, MSO shares closed at $19.01, just 22 cents lower than the day before. The Stewart news had been buried, and the impact was minimal. But the day of the
Journal
article they plunged, closing at $17.39 after dropping as low as $16.80.
Journal
article they plunged, closing at $17.39 after dropping as low as $16.80.
At 6:30 a.m. on June 12, four FBI agents converged on Waksal’s SoHo loft. He was arrested, handcuffed, and later arraigned on charges of insider trading, perjury, obstruction of justice, and fraud.
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