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Perhaps Not Quite Technically Legal, Come to Think of It

Now, wait – you’re telling me that just because you’re a doctor involved in the clinical trial of a small company’s main drug, and you’ve found out that the trial has been halted by the FDA. . .you’re saying that you can’t actually unload all your stock on that information before the public announcement? What, I ask you, is this world coming to?
Well, that’s what the two physicians in the story must be asking. They maintain that they had no idea that they couldn’t do such a thing, that they really didn’t know much about this “stock market” stuff, and so on. If that’s true, then it’s a wonderful example of the havoc that the Dunning-Kruger effect can bring. And considering that they avoided losing $34,000 and $11,000 (real but not life-ruining amounts, you’d figure), maybe they really are that clueless. Or were.

19 comments on “Perhaps Not Quite Technically Legal, Come to Think of It”

  1. Anonymous says:


  2. newnickname says:

    First: HELP! There are still problems with pages and comments loading properly! PLEASE FIX IT!
    Second: One of the MDs said he’s been involved in the clinical trials of many other drugs: “I love the fact that we’re able to help developing new drugs [and probably getting paid a generous fee per patient, especially if the “right” results are obtained], in addition to practicing medicine. I love practicing. Several of the drugs on the market I have a lot to do with.”
    Which leads me to wonder: How many other illegal stock transactions based on insider info does this guy have in his portfolio?

  3. Hap says:

    If they’re that dumb at insider trading, how good are they at being doctors? Or are people just that intellectually heterogeneous?
    @2: I think he knows already. It’s probably that he has another job, and kids, and probably other things to do, and he’s not a programmer.
    I don’t know who runs Corante’s servers, but they either need to update their machines from DOS or go to summer school.

  4. watcher says:

    Insider trading applies to those guys, not to us.

  5. dearieme says:

    If the profits had been in the billions rather than the thousands the two would be Wall St titans, and advisors to the president. The rules are different for big shots.

  6. Anonymous says:

    Interesting to note the share dealings of the senior management of certain pharmaceutical companies prior to certain merger and acquisition attempts being made public.

  7. mftkoehler says:

    Did anyone else notice that their urological clinic made it their stated “…goal to provide our patients with the most cutting edge urological care.”?
    Urologists should probably deemphasize the cutting nature of their services. Just a thought.

  8. M Welinder says:

    Why were these doctors holding that stock to begin with? (Other than demonstrating why making entirely sure studies are double blind is so important.)

  9. weirdo says:

    Corante sucks.
    That is all.

  10. Steve says:

    Guess they never heard of Martha Stewart

  11. JC says:

    I’m shocked, shocked to find that gambling is going on in here!

  12. Morten G says:

    Ignorantia juris non excusat.
    But considering how little they actually ended up paying in fines it seems like insider trading is the way to go if you estimate a moderate risk of getting caught.
    “By selling ahead of the bad news, Chu avoided $34,081 in losses and Lama saved $11,502, the SEC said in a lawsuit. Chu agreed to pay $70,000 to settle the SEC case. Lama will pay nearly $47,000.”

  13. dearieme says:

    They were just conserving their optionalities.

  14. Anonymous says:

    reminds me of Martha Stewart and Imclone.

  15. will says:

    @5 you’ve got it exactly right. the SEC goes after small fish with guns blazing to make it seem like they’re enforcing the rules. The big banks get away with far bigger crimes (with far greater harm to others) eg libor, with hardly a slap on the wrist

  16. Vader says:

    It’s an immensely unpopular idea, but a number of economists have argued for doing away with insider trading laws entirely.
    The idea is that the insider who trades on his inside knowledge is quite unavoidably broadcasting that knowledge to the market, which then makes better decisions.
    Like I said, not a popular idea, at least among the investors who are initially suckered by the inside trader.

  17. metaphysician says:

    Seems the question should be “Is the amount of harm prevented by insider trading laws, more than the harm caused by the opportunity cost in resources spent on enforcing insider trading laws?” Sure, insider trading is harmful, but if there is no prospect of putting a dent in it, you have to wonder whether the money and personnel would be better used pursuing, say, fraud.
    The only other alternative I can think of is making it a prima facie crime to control the trading of stock for *any* company in which you have proprietary knowledge. I have no idea how you could even possibly set this up, though, without making jobs like “stock broker” legally impossible.

  18. Anonymous says:

    It seems like the distinction between what’s legitimate and not is rather arbitrary – if you have a good idea that a stock might go up or down, you’re a shrewd trader if you take advantage of it. But if it’s too good an idea, then that’s a crime…

  19. li says:

    Some of the commentors here seem to believe that the stock market isn’t a game of chance. Aside from a company selling its own stock (for capital improvements, of course), the major value of the market is as an entertaining way to watch suckers get fleeced. If the suckers were to perceive that the ‘playing field’ isn’t ‘level’, then fewer would participate – and we need the suckers to participate. Silver points out in his book that in Poker, without the transfers from the worst players to the best, the best players wouldn’t break even (given that the house takes its cut). Same thing for the market. It doesn’t have to be fair, just has to appear fair.

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