Samuel Waksal, the former chief executive of embattled biotech firm ImClone Systems Inc. (IMCL), was arrested on Wedneday and charged with conspiracy to commit securities fraud for allegedly tipping off two people to sell stock in the biotech company the day before federal regulators rejected its application for a cancer drug.

Waksal was arrested early in the morning at his New York home by four agents from the FBI. Waksal was charged with nine criminal counts of conspiracy, securities fraud and perjury.

ImClone, which is developing an experimental cancer drug, Erbitux, learned before the general public that the U.S. Food and Drug Administration would not accept the company's marketing application for its drug, the complaint said - information that when made public sent the company's shares plunging.

Waksal, 54, who was replaced as ImClone CEO by his brother, Harlan, on May 22, was arraigned in New York federal court on Wednesday on two counts of conspiracy to commit securities fraud, six counts of insider trading and one perjury charge. He was released on $10 million bail.

Waksal was also asked to turn over his passport and has until this Friday to identify all his assets. He also must stay in the New York area, which a Waksal spokesman said apparently would prevent him from appearing at a congressional hearing Thursday to which he had been subpoenaed.

The Securities and Exchange Commission, in a civil complaint, charged Waksal with attempting to sell $5 million of ImClone stock two days before the negative news was announced, and with tipping family members who sold more than $10 million in ImClone stock.

"We don't think there is much more harm than can be done to investor confidence in the markets than when a CEO insider trades," said Helene Glotzer, assistant regional director of the SEC New York office. "Mr. Waksal exploited his position and disregarded his responsibility to shareholders to basically protect his and his family's wealth."

Up to 15 Years in Jail

Legal experts say the criminal charges could involve penalties of up to 15 years in jail and more than $1 million in fines. Civil penalties could include fines of $120,000 for each violation plus an order to return the amount gained from the illegal trades.

ImClone is in the midst of a grueling week of questions from shareholders and lawmakers about whether company executives defrauded investors while enriching themselves and those close to them.

ImClone's shares have fallen more than 80 percent since December, when U.S. regulators unexpectedly declined to review Erbitux.

The shares fell 15 percent between Dec. 12, when the FDA raised what investigators said were "serious concerns" about the drug at a meeting with the company, and Dec. 28, when the agency's decision was made public.

On Dec. 26 Waksal received a tip from his brother Harlan, then the company's chief operating officer and now its chief executive, that the FDA would reject the Erbitux application. Harlan passed the tip along to Samuel who, according to the complaint, then tried to sell 79,797 shares. He also alerted his father, Jack and daughter, Aliza.

Waksal was unable to complete his own trade because two different brokerages would not execute the orders, the SEC said. Neither brother was available to comment.

Before the rejection was announced Dec. 28, four of Waksal's relatives sold a total of $400,000 in company stock. Additionally, one of Waksal's daughters reportedly reaped $2.5 million from selling shares. His friend Martha Stewart, the domestic lifestyle businesswoman, also shed 3,000 shares.

Martha Stewart Denies Inside Info Charge

So far no relatives have been charged, but securities lawyers say if it can be proved they knew they were receiving non-public information, they could face penalties as harsh as those meted out to Waksal.

Stewart has denied selling her shares based on inside information. She claims the sale was coincidental and that she sold the stock because she had a predetermined price at which to sell, namely if the stock fell below $60 a share. The shares were trading close to that at the time of her sale.

Shares of Martha Stewart Living Omnimedia (MSO) fell sharply Wednesday on concerns about Stewart's personal involvement with Waksal.

Samuel and Harlan Waksal were set to appear in front of a congressional committee that hopes to find out whether ImClone misled shareholders and if its top executives profited from illegal trading in ImClone shares. The committee is also looking at whether the FDA's secretive approval process for new drugs makes it easier to manipulate stocks.

Last week the congressional committee subpoenaed Waksal and five employees of the FDA who were involved in the development of Erbitux. The FDA keeps its discussions with companies strictly secret, something some argue prevents investors from being able to check a company's public statements with the actual state of a particular drug's journey through the regulatory process. 

Until now, very little has emerged about what the FDA told ImClone about Erbitux in the months leading up to December. Portion's of the agency's final letter to the company, outlining reasons for their refusal to review the drug, suggested ImClone should have known the drug needed more work. 

But the FDA, which has been without a commissioner for about a year, has itself come under fire for its opaque methods of communication. Some feel blame for the ImClone's debacle could lie in part with the agency. 

Reuters and the Associated Press contributed to this report.