Ethical issues in finance
- Theresa Santhosh
ISSUES
Fairness in
Trading Financial Sales
trading
conditions Contracting Practices
practices
Internal And
Consultancy Tax Executive
External
Services Payments compensation
Audits
● Examples of unfair trading practices included long payment delays, unjustified quality claims or
rejections of produce on the basis of quality claims not known in advance, non-respect of contract
terms, unexpected rebates, and abuse of market power in price negotiations.
● Unfair trade practices include misrepresentation, false advertising or representation of a good or
service, tied selling, false free prize or gift offers, deceptive pricing, and noncompliance with
manufacturing standards.
● A financial contract is a deal in the form of an independently arranged agreement, contract, or an
option to sell, buy, swap, lend, or repurchase, or some other similar independently arranged
transaction that is typically entered into between parties participating in the financial markets.
● Internal auditors will examine issues related to company business practices and risks, while
external auditors examine the financial records and issue an opinion regarding the financial
statements of the company.
● Executive compensation, also known as executive pay, refers to remuneration packages
specifically designed for business leaders, senior management and executive-level employees of a
company.
Specific corporate ethical and legal abuses
Creative Earnings Securities Bribery
Accounting Management Fraud
The exploitation of loopholes in The act of intentionally A deceptive practice in the
financial regulation in order to gain influencing the process of stock or commodities
The giving or offering
advantage or present figures in a financial reporting to markets that induces
bribe
misleadingly favourable light. obtain some private gain investors to make purchase
or sales on the basis of false
information
Misleading
Financial Insider Trading Kickbacks Facilitation
Accounting A form of negotiated
Payments
The illegal practice of trading
When a financial information is bribery in which a
the stock exchange to ones Payment made to
presented that does not commission is paid to the
own advantage through having speed up the
represent the true state of bribe taker in exchange
access to confidential performance
affairs of an organisation for the service rendered
information
Case studies
Harshad Mehta Scam
Harshad Mehta was a well-known stock broker, alleged to have manipulated the stock market in 1992 by
drawing out funds from banks fraudulently. Some finance experts believe, Harshad Mehta did not commit
any fraud, "he simply exploited loopholes in the system," they opine.
Mehta was arrested by investigation agencies in November 1992. He was charged with over 70 criminal
cases (mostly relating to bribery, cheating, forgery, criminal conspiracy and falsification of accounts) and
over 600 civil action suits. On 31- December 2001, at the age of 48, Mehta died with 27 cases still
pending.
Case studies
Raj Rajaratnam and Insider Trading
In October 2009, the Justice Department charged Raj Rajaratnam, a New York hedge fund manager, with
fourteen counts of securities fraud and conspiracy. Rajaratnam, who was found guilty on all fourteen
counts on May 11, 2011, had allegedly cultivated a network of executives at, among others, Intel,
McKinsey, IBM, and Goldman Sachs. These insiders provided him with material nonpublic information.
Case studies
Worldcom
● WorldCom was the biggest accounting scandal in the history of the United States as well as one of the
biggest bankruptcies.
● After the tech bubble burst and companies slashed spending on telecom services, WorldCom resorted to
accounting tricks to maintain the appearance of ever-growing profitability.
● Former CEO Bernard Ebbers was sentenced to 25 years in prison, and former CFO Scott Sullivan was
sentenced to five years.
In a global recognition of a different kind, India has been ranked as the worst performer by Transparency
International on its global Bribe Payers Index, which is based on the propensity of companies from the
world's 30 leading exporting countries in bribing abroad.
India has been ranked at the 30th position in the Transparency International 2006 Bribe Payers Index
(BPI), with a score of 4.62. A score of 10 indicates a perception of no corruption, while zero means
corruption is seen as rampant.
