Communication Tools
Insider Trading – Lessons Unlearned
While the high-profile downfalls of Boesky, Milken, and a host of other so-called “Masters of the Universe” still conjure powerful – if not deterring – images of just what’s at stake when nonpublic information is used to net windfall profits, it seems a new breed of white collar offenders has emerged to write yet another chapter in one of Wall Street’s oldest stories – the saga of insider trading.
According to Financial Times, suspicious trading in advance of significant company mergers is up 400% over the last six years, with spikes in trading activity preceding 60% of the largest deals announced in North America in 2007. Last year, a senior SEC official characterized insider trading as “rampant” among Wall Street professionals.
While violations vary in severity, the media makes no such distinctions. Martha Stewart’s infringement seemed miniscule compared to the $6.7 million that former Goldman Sachs trader Eugene Plotkin and his co-conspirators allegedly siphoned off the market – but once the media got hold of the story, Stewart found herself cast in the role of Leona Helmsley’s heir apparent.
In this climate of intense media scrutiny, the harm inflicted by an SEC investigation can cut much deeper than just a temporary “correction” in share price. Brand credibility and trust can be savaged, as investors start looking for safer bets. To minimize the damage:
Cooperate fully with regulator requests. If the SEC comes knocking, demonstrate that you have nothing to hide by driving an agenda of full disclosure. Rest assured; the details will come out eventually – so you might as well reveal them yourself and make the most of an early opportunity to shape the story.
Create a zero tolerance environment. As a matter of effective governance and brand protection, companies must effectively communicate that insider trading will not be tolerated. If your company is a hedge fund, demonstrate your commitment to lawful business practices, even in the absence of stringent regulatory controls.
Define the crime as an “isolated incident.” In crisis communications, defining the problem is often as effective as putting forth a solution. Take swift action to hold responsible parties accountable, thereby defining the crisis as one of human failure, not corporate irresponsibility.
Publicize measures aimed at curbing insider trading. Articulate the measures your company takes to discourage wrongdoing and educate its workforce as to the consequences of illegal trading. If no such measures exist, implement them ASAP and illustrate how the company transformed an unfortunate incident into a valuable learning experience for every employee.
Ban the “rush for riches.” A significant aspect of your internal communications effort should be geared toward junior professionals – informing them that there are no shortcuts, and that illegal activity will prematurely end a promising financial services career.
Be prepared for the worst. Be ready to communicate quickly when a scandal hits by creating placeholder content for your website (press releases, FAQs, open letters to shareholders, updates, etc.) that will only go live in the event of an insider trading crisis. Maintaining these “dark pages” will allow you to get your side of the story out before the first reporter calls.
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