The Stature of the SEC is Rising, But Business Ethics are Sinking

 Another survey presents significant questions regarding the state of ethics on Wall Street and, in particular, the financial services industry. A significant number of those who responded to a new survey stated that the rules might have to be broken to be successful, that their company may have engaged in wrongful or unethical conduct, that their supervisor would likely turn a blind eye to wrongful acts and that competitors participated in improper conduct. The survey, titled “Wall Street in Crisis: A Perfect Storm Looming” (July 2013(here), was prepared by Labaton Sucharow, a law firm specializing in whistleblower actions. It seems to confirm, at least in part, the findings of a survey released in May of this year by Ernst & Young (here).

Key findings from the Wall Street survey include:

Breaking rules: Almost 30% of those surveyed indicated that rules might have to be broker to be successful, a significant increase over the results from one year earlier.

Their firm: When asked if they believed it was likely that the staff at their company had engaged in wrongful conduct, 24% responded in the affirmative. Again, this represented a significant increase over the year before.

Competitors: When asked if they believed competitors would engage in unethical or wrongful conduct, 52% responded in the affirmative. Again, this represents a significant increase over last year.

Observe wrongful conduct: Of those responding, 23% stated that they had either personally observed, or had first hand knowledge of, wrong-doing in the work place.

Interests of client: While client service is supposed to be a key goal for financial services enterprises, 28% of those responding in the survey stated that firms in the industry do not put clients first.

Tolerance for wrongful conduct: When asked if leaders at their organization would likely ignore suspected insider trading, 17% responded in the affirmative. If the leader actually learned of insider trading, 15% stated it was unlikely the conduct would be reported.

The results of the Wall Street survey seem to confirm those of the May 2013 survey released by accounting giant E&Y. In that survey, which focused on Foreign Corrupt Practices issues, 15% indicated a willingness to make payments to obtain or retain business despite the fact that such conduct is prohibited by the statute. Similarly, 47% of CFOs surveyed by E&Y indicated that in an economic down turn one or more questionable actions may be used while 52% indicated that company management is likely to cut corners to meet targets.

Read together the two surveys paint a dismal picture of ethics in American business. Perhaps the only bright spot in the Wall Street survey is the improved stature of the SEC and its efforts to police the markets. In 2012 only 26% of those responding stated that the Commission was effective at detecting, investigating and prosecuting securities violations. That number jumped to 62% in this year’s survey.

For more commentary on developing securities issues, visit SEC Actions, a blog by Thomas Gorman.

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