The SEC and other Wall Street authorities have drawn a line in the sand. Take part in unethical or illegal behavior and they will go after you with their full authority, even if it takes a decade to prove their case. Just look at the ongoing sagas surrounding SAC Capital founder Steven Cohen and ex-Goldman Sachs trader Fabrice Tourre. One would figure then that the next generation of Wall Street bankers would be more fearful of cheating the system. In fact it’s quite the opposite.
Nearly one-quarter of financial services employees believe people at their firm have engaged in unethical or illegal behavior, a 14 percentage point increase over the prior year, according to a new study from Labaton Sucharow, a law firm specializing in whistleblower actions. Nearly all those respondents said they personally observed or had firsthand knowledge of such behavior.
The problem, at least according to those surveyed, is that the system continues to reward bankers who cheat it. Or, to put another way, it fails to reward those who play the game straight.
With revenue-generating opportunities becoming scarcer, more employees are feeling the itch to cut corners. Nearly 30% of respondents said the rules may have to be broken in order to be successful, a 17 percentage point increase over last year’s survey. And the newer to Wall Street you are, the more likely you are to not trust old-fashioned hard work. Employees with 10 years of experience or fewer were twice as likely to believe Wall Streeters may have to engage in misconduct to get ahead than more experienced workers.
"Many in the financial services industry appear to have lost their moral compass, and younger professionals pose the greatest threat,” said Jordan Thomas, partner at Labaton Sucharow.
It appears the problem isn’t just the culture on Wall Street, but the compensation structures currently in place at most U.S. firms. More than one-quarter of respondents believe their compensation plans encourage employees to compromise their ethical standards. Wall Street leadership isn’t doing much to help. Seventeen percent of financial services pros believe their leaders would look the other way if they suspected one of their employees was making gains from insider trading. Again, younger employees were the most morally ambivalent.
Perhaps less surprising, roughly one-quarter of Wall Streeters would engage in insider trading to make $10 million if they knew they could get away with it. Less experienced respondents were four times as likely to be willing to trade on inside information if there weren’t any ramifications.
The results of the study are a bit surprising in a way. While the SEC has failed to bring criminal charges against Cohen and other high-profile names, it’s been extremely successful when taking insider trading cases to trial. Bankers have plenty of reasons to fear Wall Street authorities.
If anything, the survey underscores the current environment on Wall Street, particularly in a Fed-supported economy. It’s just not that easy to generate revenue anymore.