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Kathy Valentine
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Jessica Galehouse
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Investment Industry Needs a Strong Reminder that Insider Trading Damages Investor Trust and Is Always Wrong, Says CFA Institute President and CEO

 

 

NEW YORK, March 6, 2007 − CFA Institute today expressed concern and disappointment regarding the announcement of the latest case of insider trading. 

 

“Our organization is deeply troubled about the impact these ethics-related allegations  have on investor trust,” said Jeff Diermeier, CFA, president and CEO of CFA Institute, the organization that administers the Chartered Financial Analyst® (CFA®) designation. CFA Institute promulgates a life-long commitment to and awareness of ethics and integrity, grounded on its comprehensive Code of Ethics and Standards of Professional Conduct, which was first developed more than 40 years ago. Its 89,000 members and more than 100,000 candidates in the CFA Program are required annually to attest to their compliance with the Code and Standards.

 

CFA Institute has developed standards of conduct and professionalism in several key areas, including investment performance reporting, soft dollar usage, and asset management. “We pay particular attention to the issue of insider information and the proper conduct of analysts,” said Diermeier, noting that the CFA Institute Code and Standards, which are more stringent than U.S. law, make it crystal clear that trading on insider information is always wrong. “Each day tens of thousands of investment professionals conduct themselves ethically and fairly. Meanwhile, a few individuals continue to flout the rules, reflecting poorly on an entire industry and profession. It demonstrates an unfortunate truth:  regulating honesty is very elusive. If the allegations of scheming in this latest insider trading incident are true, it reveals how resourceful the offenders can be.”

 

Diermeier added that “we were outraged and dismayed to learn that one of the named individuals – Erik Franklin – was once a CFA Institute member. Even though Franklin never completed the requirements to receive the CFA designation, CFA Institute takes this very seriously. Our disciplinary program does not presently cover those who are no longer members, a matter our Board of Governors will soon be reconsidering. When events as egregious as this occur, our industry needs to take a hard look in the mirror and ask whether it is still able to police itself or will there be more government regulation.” Diermeier continued, saying that when the “gatekeepers” are part of the problem, as was the case here, penalties should be severe because of their added responsibility for building a culture of trust in the capital markets.

 

CFA Institute promotes ethics with great concern for the needs of the industry, recently developing a comprehensive, practice-based training program for investment firms. The program is in the early stages of roll-out. Ethics and professional conduct have also been an important component to the CFA Program throughout its 44-year history.

 

“We approach this with the knowledge that proper training and attention to ethics at an individual level, with continuous reinforcement, is part of the answer,” said Diermeier. “Some may never learn, but we hope the industry will join us in reaching out with a strong reminder,” he concluded.    

 

For more information on the CFA ethics training program and other professional standards, contact Jon Stokes via e-mail or at +1 (434) 951-5314.

 

Additional Resources

 

CFA Institute
CFA Institute is the global, not-for-profit professional association that administers the Chartered Financial Analyst® (CFA®) curriculum and exam program worldwide; publishes research; conducts professional development programs; and sets voluntary, ethics-based professional and performance-reporting standards for the investment industry. CFA Institute has more than 89,000 members, who include the world’s 77,000 CFA charterholders, in 129 countries and territories, as well as 134 affiliated professional societies in 55 countries and territories. In 2007, CFA Institute celebrates the 60th anniversary of “the founding of a profession.” CFA Institute has offices in Charlottesville, Va., London, Hong Kong, and New York. More information may be found at www.cfainstitute.org. (Bloomberg users can find CFA Institute at 497458Z).