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MGSC14H3 Lecture Notes - Imclone Systems, Cetuximab, Ethical Dilemma

Management (MGS)
Course Code
Peter P Constantinou

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Martha Stewart Case used inside information to sell a stock investment to an
unsuspecting public
ImClone Systems Inc = trying to get FDA approval to market Erbitux, an anti-
colon cancer drug
Samuel Waksal, CEO of ImClone = warned that FDA was going to refuse to
approve the drug before the official announcement (that FDA was going to
refuse to approve), Waksal told family members to sell ImClone stocks
Martha Stewart was probably given insider information by Waksal sold her
ImClone stocks before official announcement gained $227, 824; avoided
losing $45, 673 when the stock price dropped the next day
Ethical dilemma: Whether or not it is ethical for people to use insider
information to make decisions regarding their own stock investments
Arguments for not ethical:
o Violates hypernorm of fairness -- insider information is information that
the general public do not have; those that use insider information have an
unfair advantage over others
o Using insider information for one’s own benefit is a violation of
confidentiality and a betrayal of trust eg. Inside information disclosed
during company meetings, in memos, reports, etc. are disclosed with the
expectation that the information will not leave the company
o Insider trading actually hurts others by dumping your stocks on an
unsuspecting public right before the stock price drops, you are profiting
from other people’s losses; those who buy the stocks from you lose
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