Ethical Behavior on Wall Street

Labaton Sucharow, which has been around for 50 years, is trying to establish itself as the firm that SEC whistleblowers would go to.  They have published the results of their second annual survey of ethical behavior on Wall Street.  They had 250 people respond to the survey. Here are their key findings:

• Despite the many reforms put in place in the wake of the financial crisis, only 36% of respondents felt that Wall Street has changed for the better since Dodd-Frank’s passage in 2010.

• • More than half of respondents–52%–felt it was likely that their competitors have engaged in unethical or illegal activity to gain an edge in the market; 24% felt employees at their own company likely have engaged in misconduct to get ahead.
  • Misconduct is still widespread in the financial services industry; 23% of respondents indicated that they had observed or had firsthand knowledge of wrongdoing in the workplace.
  • 29% of respondents believed that financial services professionals may need to engage in unethical or illegal activity in order to be successful.
  • More than one-quarter of all financial services professionals–26%–believed the compensation plans or bonus structures in place at their companies incentivize employees to compromise ethical standards or violate the law.
  • An alarming number of financial services professionals, 24% of respondents, likely
  would engage in insider trading to make $10 million if they could get away with it.
  • Shockingly, and consistent with recent and high-profile criticism of the culture within
  the financial services industry, a full 28% of respondents felt that the financial services
  industry does not put the interests of clients first.
  • Building on this seemingly endemic culture problem, a concerning number of financial services professionals indicated that their leadership may put profits above ethics; 17% felt their leaders were likely to look the other way if they suspected a top performer engaged in insider trading. Equally concerning, 15% doubted that their leadership, upon learning of a top performer’s crime, would report it to the authorities.
  • As enforcement actions are on the rise and new reforms have strengthened financial regulators and law enforcement authorities, the court of public opinion is following suit; 62% of financial services professionals felt the SEC is an effective watchdog and 57% felt that FINRA is effective.
  • Despite the encouraging 89% of financial services professionals who indicated a willingness to report wrongdoing given the protections and incentives such as those offered by the SEC Whistleblower Program, 40% of respondents were still unaware of the SEC’s Whistleblower Program.