Key Players

Morgan Stanley, a leading U.S. Investment Bank, was trying to transform it’s work environment to one that fosters teamwork but promotes innovation also. This vision was developed under the management of the new president John Mack and his executive team. President Mack was searching for folk to’shake up the culture.’ With heavy resistance, he recruited Paul Nasr to be the Senior managing Director in Capital Market Services. Paul was a highly rated banker with over 20 ( 20 ) years of experience. He knew that one of Morgan Stanley’s weak areas was Capital Market Services, an area where he had been successful during the past. Paul also knew that it would probably take more than a traditional corporate banker to penetrate this market. That person must be energetic, assertive and inventive. That is’s why he inducted Rob Parson. Rob developed relationships with the significant players in the banking and insurance industries and a powerful reputation. Rob isn’t easily deterred or intimidated and knows what’s needed to get the job finished. His drive and aspiration lets him hook up with his clients but infrequently distances him from his co-workers.

Sequence of Events

The position that Paul needed to fill was hard to perform and had a particularly high turnover rate. He suspected that Rob was the ideal person to fill that billet. Rob accepted the position with the understanding that there had been a potential for growth as the effort was short of correct and therefore the Morgan Stanley had done little business in Capital Markets. Paul unquestioningly guaranteed Rob a promotion to managing director during recruitment. Rob never imagined that he’d have to tip-toe on egg shells when working with co-workers. The new president wanted folks who could shake things up and Rob had been successful in bringing Morgan Stanley into this Market. [**] it appeared that he has made some animosity among his peers. Morgan Stanley instituted a 360 degree performance evaluation system that permits an employee to be evaluated by highers, subordinates, and peers. After Rob’s last performance analysis, it appeared that he would be having trouble adjusting to the Morgan Stanley Culture. The analysis was negative and indicated that Rob had significant issues working with people inside the firm.

to restore financial confidence in the American industrial system after the big impact of the Depression hit the country in latter 1920’s, the just elected President Roosevelt mandated the creation of the instruments Exchange Commission, part of the Commission’s needs were now to reign in, and put a cap on insider trading. Who did FDR appoint as the first SEC Commissioner – Joseph Kennedy? Old Joe Kennedy was one of the notorious insider traders that took advantage of any and all information that came his way.

In the same league as Jesse Livermore, Jacob Fisk, and Bernard Baruch, Joe Kennedy knew where the bones were buried. He quickly moved to form a sequence of laws, rules, and laws that would outlaw the practices that in past decades had enabled him, Kennedy to become one of the 4 wealthiest individuals in America. The practice of lawful insider trading had come to an end legally. To show you how effective these policies have been, everytime a real case of such trading comes to public light, it makes across the nation reports. The reason is because of the relative rarity of such scandalous behavior being brought to public light.

The traders involved in this case engaged in collusive loan transactions, routinely directed Morgan Stanley stock-loan business to two co-conspirators as’finders’, and resulted in Morgan Stanley having to pay millions of’finder’s fees’ to companies controlled by the traders themselves and their friends. These shell companies provided no real finding services while secret refunds were paid. This would possibly not be a single, unfortunate situation, similar cases abound. Last year, Randi Collotta, previous Morgan Stanley compliance officer, begged guilty to insider-trading charges, while Jennifer Wang, previous Morgan Stanley VP, was sentenced to jail for within trading.

events like these not only show that some Morgan Stanley staff fully lacked integrity, they also show that the company has major internal control issues. For an investment bank of this size, there are layers of controls that should have sensed the issue much earlier. Compliance office, risk control, product control, operations, audit – if these departments were efficacious in what they do they would have identified the funny business.

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