CONFLICT ON A TRADING FLOOR (A)
Brief background and context:
Junior salesperson ("Seth"), an assistant on the non-dollar derivative desk of FirstAmerica (“FA”), finds himself in a difficult situation and has to decide what course of action to take as relates to going along with misrepresenting material facts to a key client, Poseidon, in conjunction with their hedging of French Franks relating to the $700 million equivalent cost of the five year construction of a new cruise ship.
Seth is a relatively new employee at FA and was recruited by one of his key managers, a salesperson named Linda. Linda is asking Seth to “play along” with her questionable sales tactics so as to make the trading desk at FA a huge profit and herself a very large $1 million bonus. Seth would earn a bonus of about 70% of his base salary. Seth is ethically conflicted, as he does not feel that Linda’s tactics are honest and perhaps even legal.
Who are the key players involved:
(i) “Seth” – the junior salesperson at FA
(ii) Linda – a top salesperson on the FX desk at FA and Seth’s boss; recruited Seth in (iii) Roger – floor trader at FA
(iv) Peter – Sales Manager for Derivatives at FA
(v) CFO of Poseidon
What are the main issues/allegations?
(i) Is fraud being committed by any or all of the following: a. Sending the Telerate page that grosses up for withholding tax, but withholding tax does not apply to cross currency swaps b. Convincing the CFO of Poseidon that the deal needs to remain secret and not shopped to other competitors so as to not “move the market” ahead of the trade. c. Telling the CFO of Poseidon that the profit to FA is $1.25 million when in reality the profit to FA would be $12.5 million. (ii) What is the short-term impact to FA versus the long-term impact? Is FA’s reputation at risk if this information becomes public? (iii) Seth’s future career at FA
(iv) I am only a new junior salesperson…can I...
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