NEW YORK (CNN/Money) -
Former ImClone Systems CEO Sam Waksal, whose arrest on securities fraud charges has cast suspicion on Martha Stewart, was indicted Wednesday on charges related to an insider trading scandal that has hurt ImClone as well as Stewart's home fashion business.
The indictment, filed in federal court in Manhattan, brings new charges of obstruction of justice and bank fraud against Waksal in addition to previous securities fraud and perjury charges. Prosecutors say Waksal tried to sell ImClone stock after he learned that the Food and Drug Administration was going to refuse to consider ImClone's application for its cancer drug, Erbitux.
Waksal had been in talks to plead guilty to insider trading-related charges to protect others in his family from being indicted in the case, a person familiar with the situation has told CNN/Money. With Wednesday's indictment, those talks apparently broke down.
The ImClone co-founder was arrested in June and charged with securities fraud, conspiracy and perjury and freed on $10 million bail. Last month, government attorneys won an extension as they sought to win a plea agreement. Federal prosecutors had wanted Waksal to serve a seven- to 10-year prison term, CNN/Money has reported.
The Securities and Exchange Commission has also filed a separate civil action against Waksal.
According to the indictment, Waksal secretly advised two people -- his daughter, Aliza, and his father, Jack, according to news accounts -- to sell ImClone shares on Dec. 27. ImClone's shares plunged after the FDA's decision was announced on Dec. 28.
Waksal and the unidentified "tippees" made false and misleading statements while under oath to the SEC regarding their communication during March and April, according to the charges.
In addition, the indictment says Waksal had more than $75 million in debt, more than $50 million of that margin debt secured by ImClone shares. He knew that if the company's share price dropped substantially, stock secured by the margin debt would be sold, and his net worth would plummet, the case alleges.
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He also allegedly forged signatures and pledged ImClone securities that he no longer owned to obtain a $44 million bank loan from Bank of America.
The indictment also says that Waksal directed people to shred documents at ImClone's offices in New York early this year as the SEC started investigating. Waksal also allegedly asked another person to destroy computer files and records pertaining to offshore accounts he maintained in Switzerland and the Netherlands, according to the indictment.
"This is a painful chapter in Dr. Waksal's life, but he continues to believe in ImClone and Erbitux as holding out real hope for millions of cancer patients," Mark Pomerantz, Waksal's attorney, said in a statement. "Like all Americans, he is presumed to be innocent, and he will respond to these charges as required."
Charles Stillman, an attorney for Waksal's father, Jack, said his client is not in talks with prosecutors. "Jack Waksal's only concern is for the well being of his son," Stillman said. "He knows full well of Sam's many accomplishments and efforts in the struggle to find a cure for cancer."
An attorneys for Sam Waksal's daughter, Aliza, could not be reached for comment.
If convicted, Waksal faces five years in prison for each count of conspiracy, perjury and obstruction and a maximum fine of $250,000 for each count. He could get 10 years in jail and a maximum fine of $1 million for securities fraud, while for bank fraud he faces 30 years and a $250,000 fine.
The Stewart connection
Investigators also are eyeing Stewart after learning that the home-design guru sold nearly 4,000 ImClone shares on Dec. 27.
Stewart, a friend of Waksal, has said she simply had a standing order to sell her stock when it went below $60. But doubt has been cast on that assertion because no evidence of an agreement with her Merrill Lynch broker, Peter Bacanovic, has been found. Congressional investigators Tuesday asked for more documents.
Shares of Martha Stewart Living Omnimedia (MSO: Research, Estimates), which have dropped 60 percent from their 52-week high of $20.93, tumbled another 8 percent to $7.50 Wednesday. Shares of ImClone (IMCL: Research, Estimates), which closed Wednesday at $6.68, gained 2 cents in after-hours trading on Instinet.