Wall Street wolves still on the prowl as survey reveals taste for unethical tactics
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Quarter of financial executives in US and UK earning over $500,000 a year would conduct insider trading if they thought they could get away with it
Nearly half of the 1,200 respondents to the survey believed it was likely that their competitors engaged in illegal or unethical activity – as extensively documented in Martin Scorsese’s film The Wolf of Wall Street.
Nearly half the 1,200 respondents to the survey believed their competitors probably engaged in illegal or unethical activity – as shown in Martin Scorsese’s film The Wolf of Wall Street. Photograph: Moviestore/Rex
Dominic Rushe
@dominicru
Tuesday 19 May 2015 12.03 EDT Last modified on Tuesday 19 May 2015 19.00 EDT
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The wolf is still on Wall Street. According to a report released on Tuesday a third of financial executives who said they made more than $500,000 annually “have witnessed or have firsthand knowledge of wrongdoing in the workplace”. A quarter would conduct insider trading if they were guaranteed $10m – and knew they would get away with it.
Five years after the financial crisis and following a series of regulatory changes, high-profile prosecutions, fines and a handful of jailings, attitudes to wrongdoing in the US and the UK seem unchastened.
“Nearly one in five respondents feel financial service professionals must sometimes engage in unethical or illegal activity to be successful in the current financial environment,” according to the survey of 1,200 traders, portfolio managers, investment bankers and hedge fund professionals on both sides of the Atlantic.
The survey, conducted by the University of Notre Dame in conjunction with Labaton Sucharow, a law firm that often represents whistleblowers, noted “a marked decline in ethics” since they last published their report two years ago.
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Attitude problems are worse in the UK than in the US – or perhaps the respondents were more honest. According to the report 24% of respondents in the US would use non-public information to make a guaranteed $10m, if there was no chance of getting found out. In the UK that figure rose to 32%.
The survey found men were marginally more cynical than women, with 27% of males saying they would probably engage in insider trading to make $10m if there was no chance of being arrested, against 22% of women. In the UK 34% of men said they would engage in this insider trading scenario, compared with 23% of women.
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Looking at their own companies, 23% of respondents said it was “likely” their colleagues had engaged in illegal or unethical behaviour. In the UK that figure was 28%. Both percentages were a marked increase on the last survey, which found 12% believed their fellow employees would act unethically.
Even after all the fines, new regulation and public censure, new employees have less confidence in their colleagues than those with more experience. Close to a quarter of those with less than 10 years’ experience reported believing colleagues had made “ethical or illegal compromises in order to get ahead”. That figure dropped to one in five for respondents with more than 21 years’ experience.
One in 10 said they had directly felt pressure “to compromise ethical standards or violate the law”. Nearly half said law enforcement and regulatory authorities were ineffective “in detecting, investigating and prosecuting securities violations”.
“Most concerning, is the proliferation of secrecy policies and agreements that attempt to silence reports of wrongdoing and obstruct an individual’s fundamental right to freely engage with her government,” noted authors Ann Tenbrunsel, an associate professor at University of Notre Dame, and Jordan Thomas, chairman of Labaton Sucharow’s whistleblower representation practice.
The Securities and Exchange Commission, the US’s top financial regulator, and others have been trying to encourage whistleblowing. Dodd-Frank financial regulations, enacted in 2010, set out rules to pay whistleblowers between 10% to 30% of the money collected in any case where their information results in more than $1m in penalties.
But the survey found that while the majority of industry professionals (89%) would report misconduct given incentives and protections such as those offered by the SEC whistleblower programme, 37% of respondents were still unaware of the SEC’s programme.
More worryingly, 28% of respondents earning $500,000 or more a year said their company’s confidentiality policies and procedures barred the reporting of potential illegal or unethical activities directly to law enforcement or regulatory authorities. A quarter of respondents earning $500,000 or more have signed or been asked to sign a confidentiality agreement that would prohibit reporting illegal or unethical activities to the authorities.
Some 19% of respondents said it was likely that their employer would retaliate if they were to report wrongdoing. That figure jumped to 24% for respondents from the UK.
The real picture may be worse than the report paints, conclude the authors. “We recognize that respondents may sometimes be unwilling to reckon with and divulge personal truths – especially negative ones – and it is probable that respondents’ views about their own companies are understated.”
Respondents’ views of their competitors rather than themselves “may in fact represent the most accurate snapshot of industry reality”, they reported. “So we are alarmed to report that nearly half (47%) of all respondents find it likely that their competitors have engaged in illegal or unethical activity in order to gain an edge in the market. This represents a spike from 39% in 2012. This figure jumps to 51% for individuals earning $500,000 or more per year.”
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