Insider trading tempts a quarter of traders

Jul 17, 2013
<p>Wall Street report finds employees may feel compelled to misbehave</p>

The US stock market appears mired in a ‘culture of greed’ after almost a quarter of financial services professionals reveal they would take the chance to make $10 mn through insider trading if they knew they could get away with it.

For those who have been in the industry for 10 years or less, this figure surges to 38 percent, suggesting Wall Street’s most recent appointees have fewer scruples than their forebears, only 9 percent of whom would exploit the same opportunity.

More than half of respondents (52 percent) feel it’s likely their competitors have engaged in unethical or illegal activity to gain an edge in the market, with 24 percent suspecting those in their own firms.

The survey, which was conducted online in June 2013, solicited responses from 250 respondents aged 18 and older in the financial services industry, including traders, portfolio managers, investment bankers, analysts, asset managers and brokers. It was overseen by US law firm Labaton Sucharow.

‘We can no longer hold fast to the idea that bad actors act in isolation,’ the study’s authors write. ‘Our survey findings support the premise that there are always witnesses.’

More than a quarter of respondents – 26 percent – believe payment or bonus structures at their respective companies incentivize employees to ‘compromise ethical standards or violate the law’. Again, those with under 10 years’ experience are more likely to agree with this, as are women, with 10 percent more female respondents noting their concern.

Seventeen percent point the finger at their bosses, claiming that if the leaders of their organization suspect a top performer is gaining from insider trading, they’d likely ignore it. Furthermore, 15 percent claim bosses who know an employee is engaged in insider trading would not report such activity to law enforcement or regulatory authorities, rising to one in five of those with under 10 years’ experience.

The report’s authors outline a historical precedent for their findings, adding that ‘there are, almost without exception, three factors that form a perfect storm: greed, weak leadership and fear. Bad things happen when bad actors are able to run wild and good people who might ‘out’ them turn away in fear.

‘We saw these issues at play with Enron, WorldCom, Madoff, Galleon, SAC, Tyco ‒ any number of corporate scandals. Our recent survey points to signs these destructive forces are present and growing.’

Some good news remains, however: 89 percent of professionals indicate they would report wrongdoing they themselves come across, though only given the protections and incentives offered through a whistleblowing scheme.

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