In this podcast, and corresponding detailed article, we explain the decision making process we employed in determining if we should admit a former investment banker and Stanford MBA into our case interview coaching program, taking into account he was fired with cause by his last employer, one of the most prestigious investment banks in the world.

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7 responses to Banker fired with cause. Can he pursue consulting?

  1. Jojo,

    Your thinking is correct. These are assumptions but I see how Davor could have made them.

    He was on the advisory side.

    Michael

  2. Hi Jojo,

    This is a good question.

    The issue of future liabilities does not apply to FC in this case. It applies to Sam. We wanted to see what his future liabilities would be.

    Though, I am not sure I made that quote or meant it that way:-)

    Sometimes the right thing to do will lead to major troubles or even bankruptcy. The right thing to do is not always the sane thing to do. I hav mentioned in another big piece on ethics that it is relative. I think that makes more sense to apply here.

    In reputational industries, the ripple effect is a major concern. However, we try to temper it by not being too extreme.

    Michael

  3. Hi Davor,

    This is an excellent analyses. I would encourage everyone to read this just to understand how trading works on the compliance side.

    Davor, we actually have to alter some of the client details to protect his identity. So here we have a situation where you are forced to make inferences on altered details. That makes the assumptions incorrect due to no fault of your own:-)

    If we had to list all the reasons why the assumptions are incorrect, we would make it too easy to identify Sam. Therefore, we cannot do that.

    All, we will say is that Sam’s trades were for his personal account and did not occur under the auspices of the bank.

    I openly admit that we may not know all the facts and details. Yet, we do know more than we are publishing. However, we train people to make major strategy decisions without all the facts and details so we are merely following our own advice as strategy partners.

    Michael

  4. @Davor: If I may;

    “Given that Sam was trading with 100-150 stocks at one point as you say, I infer that he was equities flow trader.”

    I think (and I may be completely wrong here) that is a pretty big inference. What Michael’s post said was that “He invested in stocks of a company the bank was representing. He should not have done that because he had access to insider information.”

    In my experience, traders, for the most part, don’t have access to insider information. The “representing” part makes me believe that this person was in an M&A type of role.

    The vetting process, I think (of course, these are all assumptions) refers to his personal investments.

    Additionally, as someone working in a similar environment, the compliance emails are not exactly infrequent. While that is no excuse (and banks make very sure that you understand this part), I can absolutely get how someone working the hours mentioned may have missed one of them, which does make me believe (along with Michael’s stress tests) that this was more negligence than malice.

  5. Hi Michael,

    This is, like you said, a very interesting case (although I‘m not sure if I’m in love the fact that we’re reducing the very real things that happened to this person to a “case”). I’m sure I’ll have a lot more questions/clarifications about this once I’ve had a little more time to think about/digest it, but I did want to ask you something.

    You’ve said before that the very definition of hubris is to worry about one’s reputation instead of worrying about the right thing to do. Given that, I was wondering why the liabilities test for Sam was a factor. Shouldn’t the fact that you believed that he wasn’t unethical (defined by the fact that he passed your earlier tests) been enough to admit him to the program? Or at least not consider his “liability” a prohibitive factor? Should the fact that Sam might someday be “exposed” for what he did (and thereby have ripple effects on whichever consulting firm he went to and Firmsconsulting) be a consideration in whether you decide to help him, given that you believe that he didn’t do anything unethical?

    I do commend you for taking him on. As someone working in his industry, I think it’s rare that people come forward on their own accord. I wish him well.

  6. I will take the view on the vetting process on the side of caution.
    Let’s start with the “mistake”.
    If Sam worked in London, he must have passed former Financial Services Authority exams, today’s Financial Conduct Authority exams, to be registered as a customer facing role. Those exams quite clearly state and emphasize the causes and implications on insider trading. Furthermore, at a prestigious investment bank there are multiple mandatory trainings throughout the year on insider trading with mandatory deadlines to complete.
    Given that Sam was trading with 100-150 stocks at one point as you say, I infer that he was equities flow trader. Yes, in this area due to volume traded there could happen that someone trades in stock, which was restricted. However, at point of their Risk sign off, and Risk represent traders positions and PnL for that day, trader goes through each portfolio and signs off on positions and PnL in that portfolio for that day. At that point it should have been clear to Sam that she/he may have traded in the restricted stock, if she/he didn’t catch that earlier in the day at the point of trading due to volume. Prestigious banks in London put stocks for which they advise the firm from the sell side on a restricted list even prior to any official e-mail from compliance. He/she should have noticed that the stock is from a company for which he was engaged as part of the project for the bank several months earlier.
    Secondly, as you say Sam didn’t earn on that trade. I doubt that. No trader enters into any position without prospect to earn money. If a trader notices at the end of the day, when she/he performs Risk sign off, that she/he lost money, trader inspects the position and intends to unwind the position, especially if it had a material PnL loss. At least here, if she/he lost money on the trade, this issue of restricted/insider position would come, because the name of the stock should have been somehow “familiar”.
    Thirdly, control functions such as Finance of the trader would have reported PnL and PnL drivers to Sam on the next day (T+1). Trader needs to sign off on that PnL and Positions driving the PnL on that day, which is the next day of the day when it was traded. On that point trader should have noticed that there is a position she/he should not have had and immediately initiate unwind of the trade.

    I infer that here the trader Sam didn’t immediately unwind the restricted position than rather waited for some time to gain money on this stock in order not to unwind the position at a loss.
    At the point when the e-mail from compliance was distributed at large that this position should not have been traded, at that point it may have been already to late for Sam to exit the trade, because stock may have generated to much loss and unwinding that position would have been flagged to control function at latest at that point due to size of loss and control functions would have reported that restricted stock was traded.
    Therefore, Sam didn’t really have much choice than to report her/himself to have traded in a position she/he should have not traded.

    Anyway, this is just my thinking, but great that the candidate was given a second chance by FC and good luck.

  7. Great podcast! The thought process you and your team goes through to analyze this situation is truly impressive.

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