Question

In: Economics

A drug company applied for the approval of the Food and Drug Administration (FDA) to market...

A drug company applied for the approval of the Food and Drug Administration (FDA) to market a miracle drug that the company believed could cure some cancers. During the period that the application was under consideration the company's stock rose to $65 per share. The president of the company learned that the FDA application was about to be denied. You are a personal friend of the president, and he told you that he believed that the stock will start trading downward. You sell 4,000 shares of stock which you purchased for $10 per share. Your decision appears to be a good one since you made a profit of about $200,000. When questioned about the sale by an investigator from the Securities and Exchange Commission, you state that the sale was because of a preexisting arrangement to sell the shares when the price fell below $60 per share. Following the announcement that the FDA application was denied, the stock went to $7 per share.

  • Did you commit a crime when you sold the stock?

  • Did you commit a crime in your answer to the federal agent?

  • Were you part of an illegal conspiracy?

Solutions

Expert Solution

We have given a hypothetical for consideration and asked to provide an answer to the questions provided.

.Yes, we committed a crime when we sold the stock because the information that we received was confidential from a source with intimate knowledge of company financial information. We have committed a crime commonly referred to as insider trading.Which is a criminal securities fraud under Section 32(a) of the Securities Exchange Act of 1934,as amended by the Sarbanes-Oxley Act of 2002. We were also potentially guilty of Mail and wire fraud and conspiracy.

.Yes, We committed a crime with our answer to the federal agent. Since our answer was a lie we are guilty of obstruction or justice in an investigation. By definition obstruction of justice occurs when a person knowingly intends to interfere in any manner at any level with any demand made by any civil investigation under the Antitrust Civil Process Act (ACPA) by any means to include destruction of evidence,threats, coercion and via any method of communication.

.Yes we were part of an illegal conspiracy because together the president of the company and we mutually understood that we were willingly performing an illegal act where the selling of the stock represented the over action.

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Rahul Sunny answered 2 years ago
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