Imclone Founder Sam Waksal: Paying the Price
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GWEN IFILL: The price for executive wrongdoing went up today, as Imclone founder Samuel Waksal was sentenced to seven years and three months in prison for his part in an insider trading scandal. Here to tell us about that case, and its possible wider meaning, is John coffee of the Columbia University Law School. John Coffee, the penalty today was seven years in prison, nearly $4 million in fines and restitution. How big a deal was that?
JOHN COFFEE: Well, this was a sentence within the sentencing guidelines. The sentencing judge rejected both the prosecution’s arguments to impose a higher sentence and defense counsel’s arguments to impose a below-the-sentencing- guideline range, but I think the prosecution will feel happy. Had they gotten a below-the- sentencing-guideline sentence in this case with all its aggravating factors, such as perjury and obstruction of justice, it might have encouraged any of a hundred or more corporate executives that are in active plea negotiations with the Department of Justice today to not cooperate and hope that their own lawyers could make an impassioned plea and get them a below-the-sentencing- guideline range sentence. After this case, the message is clear: If you want a lighter sentence, you better cooperate with the Justice Department and reach an early plea bargain.
GWEN IFILL: Let’s talk about Sam Waksal’s case in particular. What did he do? Remind people what it is that he in the end pled guilty to.
JOHN COFFEE: This is not just insider trading. This is also obstruction of justice and perjury. And the U.S. Government responds particularly sternly to perjury. They do not see that as an impulsive act. They see that as a very formal decision made under almost solemn circumstances to defy the law. And I think that explains why the government would not strike a lighter plea bargain.
GWEN IFILL: He also… what he pled guilty to apparently was agreeing to sell a lot of his Imclone stock, this erbitux, this…
JOHN COFFEE: This is the bank fraud charge.
GWEN IFILL: That’s right. In addition to that– I just wanted you to fill in all the other gaps, too– in addition to that, also tipping off others about the federal government’s imminent refusal to approve the drug.
JOHN COFFEE: Yes. I mean, there’s securities fraud, there’s bank fraud, there’s obstruction of justice. The government was proliferating the counts to get a longer indictment; to get more leverage over him. Obviously, the government wanted to make instrumental use of him and get his evidence in some other well known cases.
GWEN IFILL: His brother was involved in this; his daughter was allegedly involved in some way, and his father. But we haven’t seen any cases brought against any of them.
JOHN COFFEE: I think there was an implicit plea bargain here, even though the government won’t acknowledge it. What was most important to Dr. Waksal was that the government not indict his daughter or his aged father. And I’m pretty sure the government is not going to do that. They’ve gotten what they want: A sentence that will send both a general deterrent message and a specific deterrent message to other executives who are facing indictment that you’d better cooperate. This is the first chief executive after Enron that has come before a sentencing court, and the government faced real risk if he got off with a light sentence. I think they’re quite satisfied now that there’s a clear message sent that the U.S. Government treats securities fraud and obstruction of justice as very serious crimes.
GWEN IFILL: But as you mentioned, there are a lot of other CEO’s and ranking officials who have come under the cloud of corporate scandal in the last year or two. Why is it that we’re just seeing the first major sentencing now?
JOHN COFFEE: The criminal justice system grinds slowly. There are other trials that are about to occur at Rite Aid which is an accounting fraud case, at Cendant, which is an accounting fraud case, but the government has not been able to get to the top of the food chain at either Enron or WorldCom although there appear to be new developments now at WorldCom. I think this is the kind of case that will facilitate the ability of the government to encourage executives to cooperate and strike a plea bargain, rather than gambling on either an acquittal or an impassioned defense counsel getting them a lenient sentence.
GWEN IFILL: And you really believe there’s message-sending going on in these other cases even though they’re in other jurisdictions many of them?
JOHN COFFEE: I think every corporate executive in America will know the sentence that was imposed on Dr. Waksal tomorrow. This is a unique case in which the whole country was following this sentencing because it has certain celebrity overtones. Most sentencing cases are anonymous. That’s why this high-profile case was very important to the government.
GWEN IFILL: Speaking of celebrity cases, one of the people who Dr. Waksal was supposed to have tipped off, or at least the prosecutors are saying tipped off, about the sale of this Imclone stock is Martha Stewart. Is Martha Stewart, the domestic diva, home goddess, whatever you want to call her, is she also being sent a message with this kind of a sentencing?
JOHN COFFEE: I think there’s a message there. I want to qualify one thing. I don’t believe the government is now alleging that Dr. Waksal tipped off Martha Stewart. They’re alleging that her broker tipped her off.
GWEN IFILL: That’s correct.
JOHN COFFEE: I think Martha Stewart’s case is different. She is not accused even in the indictment of perjury. She’s accused of obstruction and false statements which are lower-level offenses. But the message of this case is that if you are convicted of cover-up charges plus securities fraud– and she’s been indicted on cover-up charges plus securities fraud– real jail time is a definite likelihood. I think Martha Stewart wouldn’t face seven years, but she might face two years or more for the combination of charges that have been levied against her.
GWEN IFILL: And why is it that the cover-up charges are so much more difficult to face down than just the simple insider trading charges? Is it a blow to the ego of the government in this, or is it just that they’re trying to say you cannot lie about what you’ve done after having done it?
JOHN COFFEE: I think it’s mainly a failure of most white-collar criminals. White-collar criminals or defendants are often very manipulative people who have managed to talk their way out of earlier problems before. And when they get into a criminal investigation, their first thought is to find an alibi or an excuse. That almost always backfires once you’re into the criminal justice system. The advice of defense counsel is to keep quiet. But a very manipulative self- confident investment banker or corporate executive believes he can talk his way out. And he quickly finds himself over his head in quicksand.
GWEN IFILL: When the first charges brought against Waksal, they were far more extensive than what he ultimately pled guilty to. Now that the sentence has been brought down against him– seven years, $3 million, another million dollars in restitution– is he going to serve all that time, pay all that money?
JOHN COFFEE: There’s no longer any parole. The only discount he’ll get is for something called “good-time credits” if he’s a model prisoner. That won’t amount to one-sixth of his sentence. So you can rest assured he’s going to serve the vast, vast majority of this time.
GWEN IFILL: John Coffee from Columbia Law School, thank you very much for joining us.
JOHN COFFEE: My pleasure.