Should investors and the buy side worry that Wall Street is a rigged game? A new survey of 250 people working in financial services finds that nearly one-third of them are ethically challenged. While the sponsor of the survey, the law firm Labaton Sucharow, wants to raise awareness of its whistleblower practice, some of the key poll results are troubling.The law firm and ORC International conducted the online survey last month and reached out to traders, portfolio managers, investment bankers, hedge fund professionals, financial analysts, investment advisors, asset managers, and stock brokers. Among the most disturbing results from the second annual survey, “Wall Street in Crisis: A Perfect Storm Looming,” are that:
- 52% of the respondents say their competitors engage in illegal or unethical behavior;
- Nearly a quarter, or 23% of respondents, report that they have seen or have first-hand knowledge of wrongdoing in the workplace;
- 24% say employees in their own company engage in similar misconduct;
- 29% of respondents believe that financial services professionals may need to engage in illegal or unethical behavior to be successful;
- 28% say the industry does not put the interests of clients first;
- 24% admit that they would “engage in insider trading if they could get away with it;”
In addition, 26% of those polled say that compensation plans or bonus systems encourage employees to compromise ethical standards or violate the law. Nearly one-quarter, or 24% of those polled, say they fear retaliation if they report wrongdoing in the workplace. Almost two-fifths, or 17%, say their leaders are likely “to look the other way” if they suspect a top performer is engaging in insider trading, and 15% doubt that a top performer benefitting from insider trading would be reported to authorities.
If these findings aren’t frightening enough, the survey also points out that “younger professionals on Wall Street were significantly more likely to be aware, accept and engage in illegal or unethical conduct than their more senior colleagues.” This implies that the next generation is far more cynical than those in control now.
“Many in the financial services industry appear to have lost their moral compass, and younger professionals pose the greatest threat to investors,” says Jordan Thomas, partner and chair of the Whistleblower Representation Practice at Labaton Sucharow, in a statement. Thomas is a former assistant director and assistant chief litigation counsel in the enforcement division of the SEC and led the agency’s whistleblower program. “Wall Street needs to take the first step toward recovery and admit that it has a corporate ethics problem, or Main Street should brace itself for more scandals.”
Not all of the findings from the survey are pessimistic. More people on Wall Street sense that the SEC and FINRA are getting stronger in their surveillance of misconduct and insider trading. They are also more aware and more willing to use the SEC’s whistleblower program — by 89% — to report wrongdoing. Another ray of hope is that the majority of respondents has not witnessed wrongdoing and do not simply expect it to be a permanent part of the landscape.
The tougher questions not asked via the survey will come when that 25% or so of respondents is tempted to engage in insider trading or other illegal acts. How many of them will decide to take the risk and rip off investors as they have seen others do successfully? How does a firm govern against a corrosive cynicism that may be on the rise?
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