Imclone Systems

Late in the afternoon of December 28, 2001, the fax machine at the SoHo offices of ImClone Systems, spit out a stunning announcement. Citing sloppy selective information and poor research design, the FDA had spiked the confederacys application to file for compliment for its much-anticipated cancer drug, Erbitux. For the officers and employees of the hot young biotech firm, it was a very regretful day -- and the start of two very bad long time.

One calendar month later, in January 2002, things got worse. Federal regulators announced that they were launching an investigation into accomplishable insider trading by the companys founder and CEO, Sam Waksal. Within the company, stroke was compounded by a sense of betrayal: Waksal had try to unload his stock just beforehand the FDAs announcement. When that news surfaced, it undermined investors popular opinion in Erbituxs efficacy, casting a pall over the faultless enterprise.

But the worst was until now to come. In March 2003, after an agonizingly painful effort to put the companys house in order, ImClones officers took yet another devastating call from the Feds. Improper accounting for taxes on stock options granted to the Waksal brothers (Sams brother, Harlan, had been the companys CEO at the time) and other executives meant the company would need to restate its earnings for 2001 and possibly for other years as well.



It could be on the hook for taxes of $60 million, before penalties and interest. Whats more, in April, ImClone was warned by Nasdaq that its stock could be de-listed if its 10-K wasnt filed by June 23, potentially triggering the collapse of all that ImClones staff had worked so hard to build.

We did everything we could to help, notwithstanding ultimately it was outside our control, says Daniel Lynch, ImClones incumbent CEO. When the stakes are that high, its...

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