More On Legal & Compliancefrom The Advisor's Professional Library
- Trading Practices and Errors When SEC-registered investment advisors conduct annual audits of firm policies and procedures, they should pay close attention to trading practices. Though usually not required to, state-registered advisors should look at their trading practices and revise policies that do not fully protect clients.
- Client Commission Practices and Soft Dollars RIAs should always evaluate whether the products and services they receive from broker-dealers are appropriate. The SEC suggested that an RIAs failure to stay within the scope of the Section 28(e) safe harbor may violate the advisors fiduciary duty to clients, so RIAs must evaluate their soft dollar relationships on a regular basis to ensure they are disclosed properly and that they do not negatively impact the best execution of clients transactions.
The LIBOR debacle now dominating headlines is just the latest wave of bad news to wash over the financial services sector.
Or as a New York Times columnist opined Wednesday, “Perhaps the most surprising aspect of the LIBOR scandal is how familiar it seems.”
As if to reinforce this notion, the New York law firm Labaton Sucharow on Tuesday released the troubling results of a survey of 500 American and British financial services professionals on corporate ethics, the regulatory landscape and individuals’ willingness to blow the whistle on wrongdoing.
According to the survey, 24% of respondents believed that financial services professionals may need to engage in unethical or illegal conduct in order to be successful, while 26% said they had observed or had firsthand knowledge of wrongdoing in the workplace.
And 16% of the professionals surveyed said they would engage in insider trading if they could get away with it.
“When misconduct is common and accepted by financial services professionals, the integrity of our entire financial system is at risk,” Jordan Thomas, partner and chairman of Labaton Sucharow’s whistleblower representation practice, said.
In a telephone interview with AdvisorOne, Thomas said that disturbing as these findings were, they did not surprise him, as they reflected similar sentiments in the wider workplace.
He noted that his firm’s December 2011 Ethics & Action Survey found 34% of Americans reporting that they had observed or had firsthand knowledge of misconduct in the workplace.
The new survey also revealed the following:
- 39% of respondents believed their competitors were likely to have engaged in illegal or unethical activity in order to be successful
- 30% said their compensation or bonus plan created pressure to compromise ethical standards or violate the law
- 23% reported other pressures that might lead to unethical or illegal conduct
- Only 30% felt the SEC and Britain’s Serious Fraud Office effectively deterred, investigated and prosecuted misconduct—despite new leadership, record enforcement actions and recent reforms
- 29% felt the same way about FINRA and the U.K.’s Financial Services Authority.
Thomas noted that British responses to the survey questions were “slightly worse” than American ones. This was a surprise, he said, because he would have expected more “cowboys” in the U.S.
Labaton Sucharow's survey found that 94% of respondents would report wrongdoing given the protections and incentives such as those offered by the SEC Whistleblower Program. However, only 44% were aware of this investor protection program.
Respondents were wary of their employers’ reactions to reports of misconduct. Twenty percent of the professionals surveyed were unsure, or had serious doubts about, how their employers would handle a report of wrongdoing.
Becoming a Whistleblower
Labaton Sucharow released the survey results in conjunction with the launch of the firm’s SEC Whistleblower Eligibility Calculator, a web-based tool to enable users to assess their eligibility for the SEC Whistleblower Program.
In a statement, the firm said the new tool was a “first-of-its-kind” response to both employees’ lack of awareness of avenues to report wrongdoing and the personal challenges inherent in blowing the whistle.
Thomas, as a former assistant director and assistant chief litigation counsel in the Enforcement Division, played a leadership role in the development of the SEC Whistleblower Program, according to the statement.
Thomas said that among potential whistleblowers he had represented, most had first reported perceived wrongdoing internally, and decided to go public only after being spurned or retaliated against by their superiors.
He said monetary awards for whistleblowers could be significant, a minimum of 10% of a sanction against a company up to 30%. Last year, he said, the SEC secured $2.8 billion in monetary sanctions, several of which were upward of $100 million.