There was the scandal involving clinical trials and institutional investors last year, the Martha Stewart-ImClone insider trading case, and sketchy stock sales by a congressman. Now comes news that Lester Crawford, the former head of the Food and Drug Administration, will plead guilty to failing to disclose financial holdings in companies affected by the agency while he was in charge.
Crawford's reign as the top FDA official was very brief. He was interim FDA chief for about a year; after President Bush finally nominated him, and he was approved to lead the agency in July 2005, he suddenly resigned in September. Initially, nobody knew why because Crawford gave no reason, but I think we can now make a pretty good conjecture about it.
The Justice Department is accusing Crawford of falsely reporting sales of stock in companies affected by FDA rulings, yet still holding the shares. That would have represented a huge conflict of interest, and lying about selling the shares would have only made things worse.
The punishment for these alleged improprieties isn't particularly harsh. According to his lawyer, Crawford is going to plead guilty to two misdemeanors and will "admit his financial disclosures had errors and omissions."
While there are no explicit insider trading allegations against Crawford and his actions aren't nearly on the level of other past indiscretions in the industry, these things make investors think the deck is stacked against them when it comes to investing in biotech and pharmaceutical stocks.
It's hoped the new FDA commissioner, Andrew von Eschenbach, can keep a greater distance between his personal investments and the agency's regulatory dealings. The integrity of the agency and even the pharmaceutical and biotech sectors depends on it.
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Fool contributor Brian Lawler does not own shares of any company mentioned in this article. The Fool has a disclosure policy.
