Question

16. A judge ruling in a securities fraud case found a corporation guilty of misleading investors because the company's disclosers predicted that a new drug would likely receive FDA approval years before the actual approval came through. What bias may have been at play for the judge in reaching this ruling?

Answer 1

FDA approval plays a crusial role in driving any pharma stock price up and down. If there is any FDA approval then stock price of the pharma company shoots up immediately. However, such price sensitive information should be released through press release to all shareholders only when approval is received. If company reveals such sensitive information before actually receiving approval then it would come under insider trading. In this case company was found guilty of predicting approval of FDA years before in its disclosures. This would fall under insider trading and therefore judge did not take time to pass his judgement against the company.

The company could be charged for violation of Section 17(a) of the Securities Act of 1933, and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and seeks a permanent injunction against future violations, disgorgement of unlawful trading profits and losses avoided plus prejudgment interest, and a financial penalty.