When Ethics Programs Are Window Dressing

On Friday, November 4th, 2013, SAC Capital Advisors became the first large Wall Street firm in twenty-five years to plead guilty to criminal charges, paying a very steep price, according the SAC general counsel, for the actions of former employees. SAC agreed to pay a total of $1.8 million in fines and other payments (the largest penalty on record for insider trading cases), to cease operating as a financial advisor for third-party investors, and to accept a five-year probation and an outside monitor. (Neumeister, 2013 and Protess, 2013)

It’s not yet a done deal. The federal judge overseeing the case did not give the plea deal her preliminary approval, choosing instead to spend some time studying the case. She is expected to rule in March 2014. At that time the judge could approve the terms of the plea deal as made, or change the terms. If the terms are changed, SAC could choose to withdraw its guilty plea or accept the new terms. We’ll all know more in March.

A significant implication for other organizations is that in this case the company, not just some of its employees, is being held accountable for the employees’ illegal acts. As Ethical Advocate posted in July, SAC was accused of permitting a systematic insider trading scheme for almost fifteen years, creating a culture where red flags were ignored (and) compliance efforts were more window dressing than not. (Flitter, 2013) Rather than demonstrating a corporate climate and culture that promoted ethical behavior, the government’s case implies, SAC demonstrated a climate and culture that promoted the opposite.

Insider trading is not just a concern for Wall Street investment firms and financial advisers, either.  All organizations with employees who have access to non-public business information from customers, suppliers, business partners, or their own companies could be at risk if employees use that information in an illegal way.

To mitigate the risk and protect their reputations, organizations are well-advised to ensure that internal codes of conduct, ethics policies, and training programs address insider training.

Ethical Advocate provides comprehensive ethics and compliance solutions, including ethics and compliance training and confidential and anonymous ethics hotlines, meeting your regulatory and reporting needs. Let us know how we can help you.


Flitter, Emily, Svea Herbst-Bayliss, and Jonathan Stempel. “U.S. Charges SAC Capital with Insider Trading Crimes”, Reuters.com, July, 25, 2013.

Neumeister, Larry and Marcy Gordon. “Record Penalty Levied for Insider Trading,” Associated Press, November 5, 2013.

Protess, Ben. “SAC Pleads Guilty, The Judge Calls a Timeout,” New York Times, November 8, 2013.