A. Basic Empirical Facts of the Problem
Societe Generale (SG), a French famous investment bank, has suffered an unprecedented loss of 4.9 billion Euros in 2008 due to a trader, Jérôme Kerviel (JK). He was accused of making unauthorized trade and using the fake portfolio to hedge the risks of securities. This provoked a heated debate concerning the ethical issues in this scandal.
Before proceeding to the investigation of ethical problems, the definition of business ethics will be reviewed in advance. According to Chris MacDonald (2010), a professor at Ryerson University in Toronto, business ethics is defined as a critical assessment of how people and organizations should act in the commercial world, especially when the profit-hunting actions of them affect others.
There are generally two ethical issues that should be concerned.
1. Individual level – Breach of fiduciary duty
JK breached the fiduciary duty that he should bear as a trader. Being a moral trader, JK should endeavor to pursue the best interests of clients. The act of cheating clients using the counterfeit portfolio allowed JK to pursue huge bonus while posing great harm to customers. This move violated the aforementioned business ethics.
2. Firm level – Blind pursuit of profit
It is also unethical for SG to ignore the abnormally high trading volume of JK until it became a serious problem. SG is also one of the fiduciaries in handling the clients’ resources for their best interests. However, Kerviel revealed in his book that his practice was common among traders in SG but the senior management did not carry out actions to prohibit it (Kerviel, 2010). This shows that SG probably aimed at earning the largest profits for the shareholders by ignoring the potential risks ...
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...e for promotion. Hence, companies may consider avoiding the transition of employees from compliance staffs to traders.
3. Firm level – Compulsory vacations for traders
The third measure is to adopt a compulsory vacation system for traders. Traders are required to take a few days for vacations at least once a year (Goldfarb, Cass & Sanati, 2008). Other staffs will take up the trader’s jobs temporarily. This provides chances to discover fraud since Kerviel refused to take holidays in the scandal (Goldfarb, Cass & Sanati, 2008). By taking compulsory vacations, fraud can be discovered more easily even if traders can deceive the regulatory system. However, this may lower the efficiency of firms as it takes time for others to catch up the progress. Despite this, it is worth to do so since the consequences of loose internal control could cost as large as 5 billion Euros.
The task of business ethics is to make sure business decisions encompass an ethical element, and to make sure that managers take ethical implications of strategic decisions into account before choosing a line of action.
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Jordan Belfort is famous for his crooked way of earning his millions as a stockbroker on Wall Street. Even Belfort started at the bottom, on his first day in Wall Street he was told he was “lower than pond scum”(Belfort 1). After writing a book about his happenings on Wall Street, we’ve seen the
Mark Cuban the owner of the Dallas Mavericks was born and raised in Pittsburgh, PA. From his early age you could tell Mark was a determined well rounded individual and when there was an opportunity he would not hesitate to act upon it. After he graduated with a business degree from Indiana University in 1981 he started a computer company which he then sold making him a millionaire. He was the co-founder of another major business and played a role in a few other major corporations. In 2008, the SEC accused him of insider trading. In general, insider trading laws forbid the trading of securities by individuals in the possession of material, nonpublic information who have a duty to an issuer, the issuer’s shareholders, or the source of the information. There are various theories of insider trading; the most common being the classical theory, the tipper/tippee theory, and the misappropriation theory. Mark Cuban was accused of misappropriation insider trading. The SEC purported that Cuban sold his 6.3% stake in the online company Mamma.com after learning from the Chief Executive Officer (CEO) that the company was going dilute the worth of its shares by offering stock. By trading his stock on this material information Mr. Cuban averted $750,000 in losses. After a five year battle between the SEC and Mr. Cuban and an initial reversal in the SEC’s favor the case went to trial and the verdict came out in favor of Mark Cuban. This paper will analyze and answer specific questions regarding this case.
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