Snow White and the poison apple

“Citi Fined $30 Million For Analyst’s Apple Leak,” Wall Street Journal, October 4, 2013, A1 http://on.wsj.com/1by1ZEi  A problem of “sloppy controls over the market-sensitive information flowing between analysts and investors.” This is just the fine by Massachusetts; other states and the Fed may follow.   Massachusetts fined Citi $2 million last year for another such release.  “The biggest hit, said [a Duke university professor], is to Citigroup’s reputation.” The Taiwan-based Internet and hardware analyst released the negative information to the public in December 2012 a day after giving four brokerage firms an early heads-up.  Apple’s stock dropped 5.2% between when he told the brokerages and when he told the market.

Apparently, this is a common problem in the industry, where there is supposed to be a wall between the research division and the investment banking division.  The analyst at issue here knew this behavior was wrong, but did it anyway. He lost his job. He cost Citi millions, and counting.

What pressures led him to do it anyway? Did he think he wouldn’t get caught?  If so, is there so much of this going on that he thought he’d get away with it? Are there other people in Citi who pressed him to do this?  Are the brokerages at fault not just for getting the information, but pressing for it?

Training didn’t work.  Fear of fines, losing his job, or damaging Citi’s reputation didn’t work.  How would you prevent this? Hold the analyst’s kids hostage?

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Filed under Interconnections, Internal controls, Policy, Protect assets, Requirements, Risk, Security, Use, Value

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