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Running head: Case Study Report 3 Case Study Report 3 Deb Gephart Western International University LDR 620 Ethics and Corporate Social Responsibility Ray November January 28, 2008 Case Study Report 3 I chose to report upon the case study involving ImClone and Samuel Waksal’s deceitful practices involving selling personal shares of ImClone stock. Samuel Waksal knowingly participated in insider trading which involved selling his ImClone stock and then notifying his family of the impending refusal by the FDA for the approval of their first drug Erbitux.
Waksal was privy to non-public information which he knew would negatively impact the value of ImClone stock. Rather than perform his corporate duty and abide by the Securities Act, he made the conscious decision to deceptively sell his shares of stock before the FDA results caused him to suffer huge personal financial losses. Waksal attempted to transfer and sell his stock but was unable to through normal channels, as the stock was restricted and required the approval of ImClone legal counsel. When this attempt to unload his stock failed, he purchased put option contracts on ImClone stock through a Swiss bank.
These put option contracts resulted in high profits when he sold the put options on January 4, 2002. Waksal informed his daughters Aliza and Elana of the impending bad news from the FDA. Both Aliza and Elana immediately sold their ImClone shares. Waksal called his father, Jack Waksal, and informed him of the impending FDA results. The next day, Jack Waksal called Prudential Securities and placed an order to sell 1,336 shares of ImClone stock from the account of Patti Waksal, Samuel’s sister. Jack Waksal sold a total of 136,000 shares of ImClone stock to avoid financial losses.
Each family member sold their stock and as a result of doing so before the FDA announcement, they collectively avoided over millions of dollars in losses. ImClone’s stock share price was around $72 per share prior to the FDA announcement on December 28, 2001 and had dropped to about $36 per share by January 2002. (Unknown, 2002) What might motivate an individual or a company to short-cut drug testing that is crucial for FDA approval? Financial pressures on the company could be a significant reason a company would short-cut drug testing.
The work involved in getting a drug from concept to prototype to testing and approval is a long process and one which involves a steady stream of financial support. ImClone spent seven years focusing on developing a cancer treatment drug but produced nothing for sale. After spending seven years on drug development and offering nothing for sale, there was undoubtedly financial and academic pressure on the company to bring Erbitux to market quickly so research and development costs could be recouped and the company could become profitable under its first drug.
Another reason would be to manipulate test results by using smaller study groups, testing with no control groups, or testing using such a small group size that any side effects known to occur in larger test populations would not be evident and therefore would not impact approval. Test results could also be manipulated through deliberate omission of test results or any side effects or manipulating test reports based upon what was favorable during the test phase. (Adams, 2008) Why did Samuel Waksal react as he did pursuant to learning that the FDA would not approve Erbitux?
Samuel Waksal acted out of greed, lack of personal responsibility, lack of ethics, and lack of integrity. He willingly accepted the risks associated with start-up company stock when accepting stock options as part of his pay package yet was unwilling to accept those risks or the consequences when he found out the stock was about to drop in price. His family knowingly took market risks when purchasing ImClone stock and yet would not accept the consequences of losses, preferring instead to line their pockets with the livelihood of ImClone employees who suffered great losses when the stock dropped in value.
Nothing is guaranteed in the world of investing except unpredictable financial loss, gain, and anxiety. Samuel Waksal’s reaction was motivated by the desire to prevent financial losses to himself and his family regardless of the price paid by his stockholders, employees, and other investors of the company, including those employees who held no ImClone shares but dedicated their expertise to ImClone and developing its anti-cancer drug. Why were Samuel Waksal’s actions unethical? Samuel Waksal’s actions were unethical because he was acting with information his staff, board of directors, and stock holders were unaware of.
Samuel took advantage of confidential information provided to him and used it for personal financial gain and for the financial gain of his family. His actions were deliberate and taken with the clear knowledge that what he was doing was ethically and morally wrong. The sentencing of Samuel Waksal to 87 months in prison and the order to pay $3million in fines and $1. 2 million in restitution to the New York State Sales Tax Commission should serve as a stern reminder that although one may sit very high up on the corporate ladder, the code of ethics, integrity, and high personal standards cannot be put aside for even a moment.
The higher one goes up the ladder, the harder the fall to the bottom will be when they abuse their position. Company officers are held to high standards of personal and professional conduct and are expected to act in and protect the company’s best interests at all times. Samuel Waksal is an example of what happens when executives do not observe their corporate responsibility and place their ethics and integrity aside in favor of greed. Bibliography Weiss, J. (2006). Business Ethics. Toronto: Thomson South-Western. Hays, C. (2008, January 28). http://query. nytimes. com/gst/fullpage. tml? sec=health=9C00E7DB153FF932A25753C1A9659C8B63. Retrieved January 28, 2008, from New York Times: http://query. nytimes. com/gst/fullpage. html? sec=health=9C00E7DB153FF932A25753C1A9659C8B63 Unknown. (2002, January 01). http://findarticles. com/p/articles/mi_pwwi/is_200201/ai_mark02036835. Retrieved January 27, 2008, from Findarticles. com: http://findarticles. com/p/articles/mi_pwwi/is_200201/ai_mark02036835 (Adams, 2008). http://www. newstarget. com/022505. html. Retrieved January 28, 2008 from News Target. com: http://www. newstarget. com/022505. html