Roger McDaniels joined Solodor Pharmaceuticals ( SP ) as the Chief Financial Officer ( CFO ) . The company has developed a new drug called Celenza to contend terrible leukaemia. If Celenza was a success. Roger would non merely be handsomely rewarded. as his compensation bundle provided him with legion stock options. but he would besides be proud to be portion in such medical accomplishment. Upon get downing his occupation. Roger rapidly realized that. due to severe hard currency flow jobs SP would neutralize within the following four months if it could non procure a funding of at least $ 5. 5 million.
Looking for support. Roger engaged in negotiations with a venture capital house named Cambridge which made an offer to pay $ 100. 000 for each 1 per centum of SP ownership. up to 55 per centum. The offer was conditioned on Cambridge obtaining commanding involvement in SP. Cambridge had a repute for replacing direction squads in houses that it acquired. which means that Roger’s employment would be at hazard. As Roger was employed at SP for merely a few months. he would non be able to hard currency his stock options. which are to the full vested merely after annual employment.
After holding by chance received a transcript of a trade between Cambridge and Dugas Incorporated instead than a bill of exchange of the purchase understanding with SP. Roger chose to take advantage of the state of affairs. The new trade would do Dugas Incorporated stock monetary value spell from his current $ 3. 14 to possibly $ 10 or $ 15 up. Without believing about the effects. Roger accessed SP’s runing history and used every last dollar to buy 470. 000 portions in Dugas Incorporated. Roger’s behavior was in misdemeanor of Part A of SP’s Code of Ethics. as he engaged in insider trading. by illicitly doing net income by trading on the footing of nonpublic information.
Although the sum spent on Dugas Incorporated portions was important ( $ 1. 475 million ) . it took a month to the company to detect Roger’s action. Furthermore. the disbursal was uncovered non by the employees straight in charge of hard currency direction. but by an internal hearer who waited two more months before eventually make up one’s minding to utilize the whistleblowing line. Despite such a long period of clip. Roger’s action remained undiscovered. That proves a deficiency on internal controls over hard currency minutess and fiscal coverage. If there were no control activities over hard currency minutess at SP. at least the fiscal statements should hold shown the big disbursal made by Roger.