An excerpt from a bestselling book regarding one of Joe Matalon's cases.
Jan 20, 2004
ON JUNE 27, 2002, Sam invoked the Fifth Amendment 223 times and was accused of impersonating a mime. This was in a private deposition for a civil suit. It had been filed against him and Scientia Health Group, Inc., a side venture he'd cooked up that was based in Bermuda but run out of ImClone's offices. From June through November 2001, James W. Neal Jr., an experienced banker and biotech executive, had served as president of Scientia; then his contract was voided on a technicality. Now Neal was suing, alleging that Sam had engaged "in illegal, unethical and fraudulent conduct."
Sam had established Scientia in late 2000 as a holding company to invest in and fund biotech and health-care companies. It was a good idea, and Sam managed to raise $40 mil- lion from 48 backers-many of whom were also backers of ImClone. The first person on the list of Scientia's "Founder" shares was Aliza Waksal; she was followed by the lawyer Allen Grubman, the ImClone PR woman Andrea Rabney, the banker and bon vivant Arthur Altschul, the Hamptons builder Ben Krupinksi, and a long list of other familiar names-Martha Stewart; Carl Icahn and his wife, Gail; fi- nanciers Leon Black and Nelson Peltz; Dr. Bart Pasternak; Jack Waksal; Elana Waksal and her husband, Jarrett Posner. John Mendelsohn was on Scientia's scientific advisory board. Zvi Fuks, of Memorial Sloan-Kettering (who had put Sam and Mendelsohn together), was a shareholder, and so was an Israeli woman
named Sonia Ben-Yehuda.
Sam invested $7 million in Scientia. The Continental Casualty Company put in $5 mil- lion. The biggest investor of all was Softbank, a Japanese company that invested $10 million (after it had fared poorly in Internet stocks, Softbank had decided to branch into biotech).
Sam sprinkled Scientia shares like candy among his pals-to Harvey Weinstein of Mira- max, to the film producer Keith Barish, and to the art dealer Larry Gagosian. Founding in- vestors paid just one-tenth of a penny for each of their shares. Thus, Martha Stewart's 3,500 shares cost her $3.50 and Gagosian's 6,000 shares cost him $6. Gagosian wrote to the New York Observer: "I, along with dozens of Sam Waksal's social acquaintances, was solicited to invest in a start-up company called Scientia. Aside from the fact that Scientia is in the biotech field, I know very little about the com- pany... My total investment is six dollars." When The New York Times called members of the company's prominent scientific advisory board, several of them were nonplussed. "I have no idea what that is," said Brigitte Huber, a pro- fessor at Tufts University Medical School. When reminded, she recognized the name Sci- entia but said that she had never attended a meeting.
James Neal's complaint charged that, "Dur- ing his employment [Neal] became aware of cer- tain illegal and unethical conduct engaged in by Waksal, both in connection to Scientia and his other business interests." (The complaint does not specify what the conduct was, and all par- ties refused to comment on the case.) "In addi- tion, [he] witnessed Waksal make outright mis- representations to potential investors on numerous occasions." Neal, the complaint said, "made clear to Waksal, and others, that he would not stand by silently while Waksal en- gaged in such misconduct...Waksal, in turn, concluded that he did not want to be hampered by an immediate subordinate who might ex- pose his illegal, unethical and fraudulent behav. ior. Waksal thus wished to remove plaintiff from Scientia for his own personal benefit."
The suit further alleged that Neal's two subordinates at Scientia, Sonia Ben-Yehuda and Peter Getz, plotted with Waksal against Neal; then they persuaded Robert Takeuchi, Softbank's senior officer in America, to go along with their scheme.
Sam countercharged that several of his in- vestors, notably Softbank, had objected to Neal's $350,000 salary and $250,000 bonus, and that Neal's refusal to take less pay was hurt- ing the company. In November 2001, Neal was let go. That same day, Scientia completed its financing and closed its $40 million investment pool.
At Sam's deposition, Joseph Lee Matalon, Neal's attorney, asked whether Sam had com- mingled his own money with Scientia's. Sam invoked the Fifth Amendment. Matalon asked if Sam had transferred funds offshore-Waksal had accounts in Switzerland, Amsterdam, and the British Virgin Islands-"to put them out of reach of Mr. Neal in obtaining a judgment." Sam invoked the Fifth Amendment. Matalon asked about a $5 million loan from the Bank of America to Scientia. Sam invoked the Fifth Amendment. Indeed, Sam refused to admit that he had heard of Scientia (he was the founder and CEO) or that he received health benefits from the company. After taking the Fifth 223 times, Sam, Matalon noted, had done an admirable "impersonation of Marcel Marceau."
In July 2002, the court ordered Waksal not to transfer any more of his assets. The next day, he sold a piece of beachfront property in Sagaponack, New York, for some $3.12 million (the asking price had been $5 million). He claimed he had not known about the court's order. In the meantime, he'd also put up a house he owned in Wainscott for sale, at an asking price of $4.9 million. The house was taken off the market, for the moment.
Neal's suit stretched out for sometimes bizarre reasons. Matalon charged that the de- fendents were intentionally stalling the pro- ceeding while trying to find a way to close down Scientia and avoid paying Neal. At one point, Sonia Ben-Yehuda, Scientia's executive vice president for business development, claimed that she had to fly to Israel to assist her sister, who had a "medical emergency"; she'd be un- able to attend a deposition scheduled for Sep- tember 19, she said. But at II o'clock on the morning of the 19th, Neal happened to run into Ben-Yehuda in Rockefeller Center; she was car- rying two shopping bags from Saks Fifth Avenue. Her plans had changed, she said.
"This is the woman who was supposed to be in Israel and was shopping on Fifth Avenue!" blurted out Judge Ira Gammerman. "She lied to her lawyer!"
"It's unfortunate that you are left with a bad impression," said Ben-Yehuda's attorney.
In December 2002, Neal obtained a judg ment of more than $2 million against Waksal and Scientia; the parties later settled the case for an undisclosed amount."