Tuesday, July 16, 2013  

Wall Street Professional Survey Reveals Widespread Misconduct, Acceptance of Illegal Activities and Disregard of Client Interests

At the same time, financial watchdogs are increasingly trusted, willingness to report high and awareness of the SEC Whistleblower Program exploding

NEW YORK (July 16, 2013) – Labaton Sucharow LLP, which established the first national practice exclusively dedicated to representing SEC whistleblowers, today announced the results of its second annual U.S. financial services industry survey, Wall Street in Crisis: A Perfect Storm Looming. The survey confidentially polled financial professionals on corporate ethics, wrongdoing in the workplace and the role of financial regulators in policing the marketplace. The results suggest that the financial services industry faces a serious and growing ethical crisis.

An Industry in Crisis

According to the independent survey, 52 percent of the respondents believed that their competitors engaged in illegal or unethical behavior while 24 percent felt employees in their own company had engaged in similar misconduct. An astonishing 23 percent reported that they had observed or had first-hand knowledge of wrongdoing in the workplace and 29 percent believed that financial services professionals may need to engage in illegal or unethical behavior to be successful. An alarming 28 percent felt the industry does not put the interests of clients first and 24 percent admitted they would engage in insider trading if they could get away with it. Surprisingly, in response to each of these questions, 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.

"Many in the financial services industry appear to have lost their moral compass, and younger professionals pose the greatest threat to investors," said Jordan A. Thomas, partner and Chair of the Whistleblower Representation Practice at Labaton Sucharow. "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."   

A Faltering First Line of Defense

Wall Street firms should serve as an important first line of defense for investors, and the survey identified fundamental ethical weaknesses throughout the financial services industry. Consider these findings: 26 percent of financial services professionals believe the compensation plan or bonus system at their company incentivizes employees to compromise ethical standards or violate the law; 24 percent fear retaliation if they were to report wrongdoing in the workplace; 17 percent felt that leaders in their firm were likely to look the other way if they suspected a top performer had engaged in insider trading; and 15 percent doubted these leaders would report actual insider trading violations to law enforcement authorities if a top performer was involved.         

"Our survey suggests there is a big disconnect between what the financial services industry preaches and what it actually does," said Christopher J. Keller, partner and head of case development at Labaton Sucharow. "Until a culture of integrity and stewardship is established, investors will be at risk."

Signs of Hope

Financial regulators and law enforcement authorities play a critical role in protecting investors. While they have been widely criticized in the recent past, leadership changes and organizational reforms during the last year have raised the confidence levels of financial services professionals in regulators' ability to police the marketplace. In fact, 62 percent felt that the Securities and Exchange Commission (SEC) is effective at detecting, investigating and prosecuting misconduct, while 57 percent felt that FINRA was similarly effective. Since the last survey, conducted one year ago, each of these findings has increased by almost 100 percent.            

Even more promising is a survey finding that 89 percent of financial services professionals indicated a willingness to report wrongdoing given the protections and incentives offered by programs like the SEC's  Whistleblower Program. This discovery—coupled with the high percentage of individuals that reported having been aware of wrongdoing in the workplace and the fact that 60 percent of financial services professionals knew about the existence of the Whistleblower program (up from 49 percent just one year ago)—suggests that the SEC and other law enforcement authorities can expect a substantial increase in whistleblower submissions and assistance in the coming years.

"There has been a green line that financial services professionals have historically feared to cross, but they are now more willing to break their silence because of the SEC Whistleblower Program," Mr. Thomas said. "In the coming years, I predict many of the SEC's most significant cases will be the result of whistleblowers who report their tips to the agency." 

As a former Assistant Director and Assistant Chief Litigation Counsel in the Enforcement Division of the SEC, Mr. Thomas played a leadership role in the development of the agency's whistleblower program. The program has broad extraterritorial reach and offers eligible whistleblowers significant employment protections, monetary awards, and the ability to report anonymously—regardless of nationality. To ensure that adequate funds are available to pay awards, Congress has established a replenishing Investor Protection Fund, which has a balance in excess of $450 million.

Survey Methodology

On June 18-27, 2013, ORC International conducted a confidential online survey of 250 respondents 18 years of age or older who work in the financial services industry. These respondents were employed as traders, portfolio managers, investment bankers, hedge fund professionals, financial analysts, investment advisors, asset managers, and stock brokers. Full methodology is provided in the survey's executive summary at http://www.secwhistlebloweradvocate.com/LiteratureRetrieve.aspx?ID=182189.