5 Financial Stories You Might Have Missed — And X-Rated Whistleblowing

Whistle-blower?

1. Why Do The Wealthy Do It?

The New York Times raised an interesting philosophical question and important insurance concern this week. What motivates the super-wealthy to commit insider trading when the actual sums involved are relatively paltry compared to their current wealth and in light of the risk attached to the crime? Martha Stewart was convicted of lying to investigators concerning her sale of biotech stocks. That sale saved her from a loss of approximately $45,000. She paid fines and penalties of $195,000 and spent five months in jail.  The drop in her own stock is estimated to have cost her tens, if not hundreds, of millions. Similarly Raj Rajaratanam managed over $7 billion in hedge fund assets and himself was a billionaire. He is now serving 11 years in prison for an insider trading conviction that generated profits of $60 million.

The Times hypothesizes that “people who are used to making decisions quickly may not reflect on whether the information they receive takes them close to the line between permissible trading and securities fraud.” It is critical that senior management and directors question where information comes from and whether the information is public and material. If not, I hear Raj is looking for a new cellmate.

Insider Trading Riddle: Why Do the Rich Risk It?

2. Can I Swipe Your Card With My iPhone?

Last month I was in San Francisco when my taxi driver took my credit card and plugged a small cube into his phone and slid my card through it.  He asked for my email and 10 seconds later I had a receipt. Impressive? Yes. Scary? Indeed. With at least a half-dozen mobile payment products racing for dominance it is unclear who will be the winner. The only clear winner will be fraudsters. It takes time to build security for these new mobile solutions and as developers race for market share the possibility of security lapses grows. Companies like Square, PayPal, Intuit and others have taken the early lead but tech giants like Google are sure to enter the fray. In fact, Google’s rumored “augmented reality” glasses are said to have the capability to process payments by looking at the numbers on a credit card and the wearer speaking the instructions. True or not, mobile payments and the associated risks are moving quickly—we slow insurance folks better keep up if we don’t want to be left behind.

Mobile Card-Processing Machines for Marketers on the Road

3. Don’t Shoot the Regulator.

Everyone loses their tempers, but regulatory authorities don’t respond well to outbursts.  Vincent McCrudden, a former hedge fund manager, can attest to that fact.  Vincent has been sentenced to 28 months in jail for threatening various regulators including the COO of the National Futures Association (“NFA”). He even put threatening comments on his company website. Vincent had previously been criminally charged with misleading statements in his financial reports. As a result Vincent was denied registration with the NFA and began sending threatening emails including one that read, “It wasn’t ever a question of ‘if’ I was going to kill you, it was just a question of when.” Vincent later claimed that he would never intentionally hurt or cause bodily harm, but regulators are as overworked and underappreciated as other government workers.  The moral of the story is that in such circumstances a little common courtesy can go a long way in smoothing the regulatory process.

Ex-Prop Trader Gets 28 Months In Prison For Death Threats to Regulators

4. Stumbling Volcker

The controversial Dodd-Frank ‘Volcker Rule’ could be hitting a rough patch. The provision that forces banks to terminate and dispose of any large-scale proprietary trading operations appears to be stuck in regulatory hell. This week the president of the Richmond Fed, Jeffrey Lacker, stated that it may be impossible to meet the July deadline for completing the rules mandated by §619 of the Dodd Frank Act.   Nearly two years after the passage of the Act the rules remain a source of controversy. The ban on proprietary trading is supposed to take effect July 21. The law says this is required even if the rule-making is still in progress. There is then a two-year transition period and the Fed then could issue three, one-year implementation extensions on a case-by-case basis. This means that final implantation may still be 5 years away. I would point out that the unwinding of Glass-Stegall took approximately two years but reinstituting this portion may take a total of 7 years. Thus proving an adage that every parent knows well: It’s much easier to give something (proprietary trading in this case) than to take it away.

Fed’s Lacker Says Volcker Rule May Be ‘Impossible’ to Implement

5. Not Everyone is a Whistleblower

A former employee of Wachovia Bank’s insurance division was originally awarded $3.6 million as a whistleblower award when he was fired. The employee claimed that he was fired because he and a few of his colleagues had hired a lawyer and negotiated a better compensation package than employees at other offices. He asserted that the firing was retaliation for the tough salary negotiation. Wachovia claimed that the employee and seven other employees were fired when a random email audit showed that the employees had been sending illicit photographs to friends and fellow employees. Last week a New Jersey appeals court overturned the whistleblowing award stating that while the employee had the right to negotiate compensation and seek legal counsel,” it cannot be elevated, as a matter of law, to a … springboard for damages” under the Conscientious Employee Protection Act. My mother used to say, “before you point at other people…make sure your hands are clean.”

Wachovia Employee Fired Over Porn Sees Whistleblower Award Toppled (requires free subscription)

 

About Richard Magrann-Wells

Richard is a Executive Vice President with Willis Towers Watson’s Financial Institutions Group based in Los Angel…
Categories: Financial Services | Tags: , , , , ,

Leave a Reply

Your email address will not be published. Required fields are marked *