- The Washington Times - Wednesday, June 11, 2003

NEW YORK (AP) — Legal experts say the seven-year prison sentence slapped on ImClone Systems founder Sam Waksal sends a message to his friend Martha Stewart that she, too, could face a stiff penalty if convicted in the insider-trading scandal.

The harsh sentence imposed on Waksal, who was also ordered to pay more than $4.2 million, could increase the chances that Mrs. Stewart — who resigned last week as chairman and chief executive of Martha Stewart Living Omnimedia after her indictment on five counts related to the sale of ImClone stock — will try to avoid prison time with a plea bargain, one expert said.

“This has to be in the back of Martha’s mind,” said David Marder, a former Securities and Exchange Commission lawyer. “What we’re seeing here is the judges being willing to impose harsh sentences” for white-collar criminals.

Waksal was sentenced to seven years and three months in federal prison after admitting that he told his daughter to sell ImClone stock ahead of a negative government decision about the ImClone cancer drug Erbitux.

The punishment was the maximum under federal guidelines, and U.S. District Judge William H. Pauley scolded Waksal for hurting his family and investors.

Mrs. Stewart is accused by federal prosecutors of selling her ImClone shares Dec. 27, 2001, because she received word from her stockbroker that the Waksals were trying to sell. She has pleaded not guilty.

The Waksal sentence is significant because it sets a harsh tone for the corporate executives who stand accused in the wave of white-collar scandals that have unfolded since the fall of Enron Corp. in 2001, legal experts said.

“The public is tired of seeing CEOs and high-profile executives getting slaps on the wrist, and this judge is sending a message that it’s not going to be that way anymore,” Mr. Marder said.

That message likely was not lost on Mrs. Stewart, a longtime friend of Waksal, said Frank Razzano, a former federal prosecutor and assistant chief trial lawyer for the SEC.

“I think what it says is if she’s convicted of these crimes, she’s going to do time in jail.” Mr. Razzano said.

If Mrs. Stewart’s attorneys are seeking a deal with federal prosecutors, they have not tipped their hand. The public face of Mrs. Stewart’s defense has been an aggressive campaign designed to convince the public she is innocent.

It includes a Web site, updated almost daily, featuring e-mails from fans who have taken her side, a list of what Mrs. Stewart says are media distortions about the case and an open letter from the style guru herself.

There is no guarantee any judge will follow the path laid by another. Mrs. Stewart’s case is assigned to U.S. District Judge Miriam Goldman Cedarbaum, who would determine her sentence if prosecutors win a conviction.

Still, the cases against Mrs. Stewart and Waksal, as sketched out by federal prosecutors, have some similarities.

Prosecutors say Waksal saved his daughter about $600,000 by tipping her off, and they say Mrs. Stewart saved about $45,000 by dumping ImClone early — a far cry from the multimillion-dollar fraud at companies like Enron and WorldCom.

But in both the Stewart and Waksal cases, prosecutors say the defendants compounded their crimes by lying to investigators — and, in Waksal’s case, encouraging a family member to lie.

Prosecutor Michael Schachter, who is handling both cases, told the judge that Waksal deserved a tougher sentence because he told “numerous, separate and distinct sets of lies.”

And at a news conference announcing the Stewart indictment, U.S. Attorney James Comey said that case was “about lying — lying to the FBI, lying to the SEC and investors. That is conduct that will not be tolerated.”

While Mrs. Stewart was not charged with insider trading — an extremely difficult count to prove in a criminal case — all the charges against her in the federal indictment contain accusations that she made misleading statements or outright lies.

Any such falsehoods are likely to be much more harmful to Mrs. Stewart at her sentencing than the initial stock sale, Mr. Razzano said.

“It’s her principal problem,” he said. “I think she would have avoided indictment if she’d have just shut her mouth when the government came knocking on the door.”

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