Conflict on a Trading Floor

What Are The Details Of This Transaction?

The case entails a junior salesperson working with The First American Bank, an assistant on the non-dollar derivative desk named Seth. The junior salesman finds himself in a very difficult situation and as a result has to decide the course of action to take in misrepresenting material fact to a key client by the name Poseidon who are in the case with their hedging, French Francs. The case relates to s $700 million construction of a luxurious ship over a five-year period.

According to the information given, the sales department of The First American Bank was preparing a contract of $700 million loan contract for Poseidon Cruise Lines to enable them order a large ship from a French shipyard.  However, part of the contract required that it to be signed for five years and in French francs. This raised eyebrows in the management of Poseidon especially in relation to possible losses especially in dollar to francs exchange as the cash flow to Poseidon was meant to be in dollars. The contract elaboration was meant to be dealt by Linda and her assistant Seth. Linda was the top salesperson at the bank who was known for her volatility and hot temper coupled with an aggressive business style. However, Linda was well known to be a prudent person who received full credit for very good results she closed and it was decided that since Linda and the Poseidon CFO had good relations, she was to elaborate a structure that was to minimize Poseidon’s costs and risks in that particular transaction. It was therefore elaborated in the contract that Fist American Bank was to provide francs to Poseidon in several transactions and receive principal and interest rates in dollars eliminating Poseidon’s francs obligations. But in reality, this scheme by Linda was offering the bank much more profit and more cost to Poseidon than in the usual contract.

The key players involved in this case are as follows;

i.            Seth – a junior salesperson at The First American Bank

ii.            Linda – a top salesperson, she recruited Seth into the bank and she is Seth’s boss

iii.            Roger – floor trader at The First American Bank

iv.            Peter – The First American Bank’s Sales Manager for derivatives

v.            The CFO of Poseidon

The junior sales person is relatively a new employee at The First American Bank and was recruited by Linda who is one of the bank’s key salesperson managers. To make her trading desk at the bank huge profit with a bonus of $1 million, Linda has asked Seth ‘to play along’ with the contracts questionable sales tactics and Seth will earn a bonus of 70% of his basic salary. Seth does not feel that Linda’s tactics are honest and not even legal and he is ethically conflicted.

 

Seriousness of the Writer’s Predicament

The writer is facing dilemma over a multiple number of issues namely

i.            Is there any chance that fraud is committed by a) having to convince Poseidon’s CFO that the deal needs to remain secret and not shopped to other competitors so as to not “move the market” ahead of the trade, b) having to send  the Telerate page that grosses up for withholding tax in spite of the fact that withholding tax does not apply to cross currency swaps c) Telling the Poseidon’s CFO that the profit to The First American Bank is $1.25 million when in reality the profit would be ten times the number at $12.5 million.

ii.            Whether the reputation of The First American Bank is under threat if the information comes public? And if so, what are the short-term and long-term impacts to the bank?

iii.            The writer is also facing the  dilemma over his future career at the bank

iv.            There was a mismatch between the author’s personal values, his expected behavior and ethics. He knew that the transaction was not the best option for the client and that it was obtained due to deception by Linda. So should he report her and to whom.

 

Do you think this is good poker?

Personally I do not think this is good analogue. I could partially agree with Linda’s bluffing in dealing with the present case but the problem is that Linda knowingly lied to her client. It is a fact that providing consulting services is unlike selling product. It is a fact that intellectual rights as well as potential outcomes are immeasurable and vary depending on the specific case being dealt with. This is true even when there is a standard market price for a certain type of service where different strategies may be taken and the value of services weighted may change the charge upwards.

 

How similar is business to poker?

But in this case, cheating is involved with fraud and this makes it becomes a different set of situation altogether. Unlike in poker games, my view is that business encompasses different players as well as competition. These players include suppliers, employers, employees, clients, and business partners who are key to the business’ long-term development. This simply implies that there is need to exist mutual benefits between these key players. It is also important to realize that the foundation of such a relationship lies in trust between these players and hence bluffing does not and will not help in such a situation. Once a trick to deceive any party is realized immediately or later, it will result in damaging the trust that is has been built through the years.

Different people may have different takings in the case study but I have always held honesty high. Honesty is the best policy and integrity is the decisive way to go for businesses with a long-term business interests. This is also very true to utilitarian way of doing things.

The fact that women may be under a lot of pressure to work harder than men to prove themselves may be the undoing for Linda. In many organizations’ places of work, women want to prove their professional competency and it is said that they have to work harder than men to achieve this. Linda has been the best salesperson in the company and this proves why she can go the extra mile even if it involves cheating to ensure that she is recognized.

 

What is the definition of fraud?

Fraud is defined as a common law in the US. Fraud includes false representation of material fact either knowingly made to intentionally deceive a party which is reasonably relied on to the injury of the deceived party.

 

Would you consider sending the fax fraudulent?

Seth can drop the fax off at Lind’s desk and ask her to fax it. Alternatively, Seth can fax the sheet but be careful to include a note that the numbers on the sheet may not be exactly the right numbers and hence need to be checked.

 

What are the writer’s options?

Set has to be aware of the circumstances of the case. In fact Linda has set him perfectly as the scapegoat and he should avoid being used. The case involves a lot of money, $12.5 million and this will not go undetected in the long-term. As the manager, peter seems to be ineffective to help Seth as at now while the company’s senior VP may not be approachable and Linda may not be at a position to help as she is too much involved to be objective.

 

What would you do?

If I was at the same situation as Seth, I could stop covering under my fears but take a decisive step and start thinking on the $12 million fee which is 10 times the normal fee. Questions like if this is theft or just an issue with ethical sense will start lingering in my mind.

 

What do you think was the final outcome of “Conflict on the Trading Floor”?

It is also important to realize that if Poseidon makes a call to some other financial expert they will unearth the truth and eventually The First American Bank will be caught. The company will be sued and like everyone in the scandal will lose their job and face the law. The bank will lose its reputation and trust among its many partners, clients, stakeholders, and employees.

 

 

 

 

 

 

Cases learned from the case

Honesty is the best policy.

We should always act in the best interest of ourselves as well as those of our clients inc conducting any businesses deals.

Trust is as important in business as money is.