Thursday, September 15, 2011

"Rogue Trader" - OUCH

UBS is having another "ouch" moment as the media is reporting on a rogue trader. The typical questions are - how could this have happened; why was it not discovered sooner; who should be held liable; and should there be criminal liability?  It is too soon to answer many of these questions. But here are some points of interest -

UBS has a corporate responsibility policy that states:

"UBS is firmly committed to corporate responsibility and actively strives to understand, assess, weigh and address the concerns and expectations of the firm's stakeholders. This process supports UBS in its efforts to safeguard and advance the firm’s reputation for responsible corporate conduct. In very direct ways, responsible corporate conduct helps create sustainable value for the company."

Its policies include a host of different preventative measures, such as money laundering prevention here.  It takes pride in employees and notes that "[o]ur employees have the breadth of our businesses, global career opportunities and a collaborative, performance-oriented culture as a platform for individual success."

Rogue employees are not a new development for the corporate arena. No matter how many controls are in place and no matter how much oversight there might be, it is a problem to have full compliance. Knowing this, it seems important to provide companies with a "good faith" defense when a rogue employee commits acts that might be considered criminal.  Unfortunately, to date, courts have only seen fit to insert such as defense in the civil area and not the criminal sphere.  (See Podgor, A New Corporate World Mandates a Good Faith Affirmative Defense)  But corporate criminality in the federal system is premised on respondeat superior and the acts of a rogue employee are hardly for the benefit of the company.

See also -

Dan Fisher, Why Rogue Traders Get Jail But Bad Execs Get A Pension

Frank Jordans & Paisley Dodds, Houston Chronicle, Rogue trader suspected in $2 billion UBS loss

Nathan Vardi, Forbes, Rogue Trader Deals Big Blow To UBS

Victoria Howley & Emma Thomasson, Reuters, UBS $2 billion rogue trade suspect held in London

The Telepgraph, UBS rogue trader: statement to employees in full

(esp)

http://lawprofessors.typepad.com/whitecollarcrime_blog/2011/09/rogue-trader-.html

Fraud, Media, News, Securities | Permalink

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Comments

IMHO, as long as banks have divisions that are essentially engaged in gambling, these sorts of "rogue trader" cases will keep occurring. The incentives these gambling operations set up will inevitably lead to traders taking huge risks. When the results are good, they will get big bonuses and promotions. When the results are bad, they become "rogue traders."

The solution would seem to be going back to the old rules that separated "investment banks" from other financial institutions.

Posted by: Roy M. Poses MD | Sep 15, 2011 1:04:21 PM

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