Thursday, January 9, 2014

Frontline’s “To Catch A Trader” Captures Wall Street’s Fundamental Weakness

Frontline’s “To Catch A Trader” Captures Wall Street’s Fundamental Weakness

Yesterday I described why Martin Scorsese’s three-hour film The Wolf of Wall Street fails to capture the essential flaws of the financial sector.  Frontline comes much closer to the fundamental illness of Wall Street in just under 53 minutes.  I recommend that you watch “To Catch A Trader.”[1]  Full Documentary The documentary explores the insider trading allegations and convictions at Galleon Group and SAC Capital.  If you only have five minutes, watch the brief clips of Stephen A. Cohen’s deposition in a civil case against his firm on the Frontline website.[2]  Cohen clips

Requisitions Part 1 (1997)
The documentary captures three of the ingredients that make Wall Street susceptible to destructive economic behavior.  The first ingredient is, of course, the single-minded pursuit of money.  Mr. Scorsese managed to capture this element in his film, but didn’t explore the rest of the recipe.  Frontline does.  The second ingredient is an amoral mental context in which the pursuit of an informational edge (knowing something the market as a whole doesn’t know) becomes illegal.  The final ingredient is a statutory framework that has many degrees of gray that separate legal trading from patently illegal trading.  Rather than avoid any chance of violating the insider trading laws, many on Wall Street explore the gray areas and eventually find themselves on the wrong side of the black line.

Frontline shows the numerous ways in which money managers use brokers, consultants, and corporate insiders to gain an edge and cross into the realm of insider trading.  What’s so impressive about the documentary is that it captures the amoral thinking of the portfolio managers and analysts.  To these professionals the illegal information is just another piece of data necessary to help them make money.  It is merely a matter of paying someone enough money or commissions to compensate them for providing useful information, whether it is illegal or not.

Anyone who thinks that written ethical standards or compliance manuals will steer Wall Street to a higher moral ground should watch Mr. Cohen’s deposition.  SAC Capital had an extensive set of compliance procedures that clearly prohibited insider trading.  I cannot capture in words how Mr. Cohen evades responsibility for or knowledge of the manual.  You’ll have to watch the documentary or the clips.  In fact, the long pauses as Mr. Cohen considers his answers are more compelling than his words.

Here’s one troubling and ironic aspect of Frontline’s documentary; its sponsor is Goldman Sachs.


No comments:

Post a Comment