On Thursday, federal prosecutors in Manhattan charged Thomas Conradt of Denver and David Weishaus of Baltimore, two former stockbrokers, with insider-trading in a sequence of events that netted them more than $1 million in illegal profits. The scheme was built on confidential information about International Business Machines’s $1.2 billion acquisition of analytics software maker SPSS in 2009, and it was relayed by a trusting young attorney who told his closest friend about some details of the deal. The whole sorry tale can be read here.
The name of the lawyer, an associate who worked for the Manhattan mega-firm Cravath, Swaine and Moore, has yet to be revealed. It is fair to say, however, that his career is in the crapper, and he is likely to face ethics charges, civil penalties and quite possibly legal charges as well. His mistake was a fundamental ethics breach that I suspect is made every day, in various settings, by hundreds of thousands of professionals including lawyers, accountants, doctors, researchers, law enforcement officials and government agents. He shared confidential information in a casual setting with a close personal associate whom he trusted.
This you must not do, not once, not ever. Not with your spouse, lover, child, parent, best friend, mentor, oldest acquaintance, or anyone else, no matter what they promise you, what you owe them or how loyal and reliable they have been to you in the past. In the case of the Cravath associate, his casual confidante seemed completely trustworthy, according to the SEC’s civil complaint in the matter. The associate and the ultimate source of the inside information “frequently shared both personal and professional confidences with one another and had a history of maintaining and not betraying those confidences,” the SEC’s investigators found. “Based on their history, pattern, and practice of sharing confidences, each knew or reasonably should have known that the other expected such information to be maintained in confidence.” The SEC report states that over the course of their friendship, the associate had never revealed or traded on any confidential information that the source shared with him. This time, however, his confidence was betrayed.
The associate’s friend told a few of his own friends, and the plot was underway. Every one of us should pause at this point and think about the most significant confidences and secrets, work-related or otherwise, we have shared with someone we had total trust in, and what would have happened if on this occasion our trust had been misplaced. This is the exact same process that the associate should have gone through before he shared his professional confidence, and is the all-purpose ethics prophylactic for situations in which we are tempted to leak a teensy-weensy secret juuust this one time. It is called anticipating the worst-case scenario, and it is an invaluable tool when the temptation to breach ethical duties starts sending you love notes. If the associate had paused to consider what might happen if the information he was about to convey was too tempting for his friend to resist passing along, he could have easily seen the true risk of his indiscretion. True, he might have considered that the chances of that scenario occurring were remote, but a remote chance of having your career destroyed or going to jail is still worth avoiding.
The three lessons of this fiasco are clear and easily absorbed:
- If you have a confidence that your professional duties dictate cannot be shared except on a need-to-know basis, don’t share it.
- If you are tempted to share it with an individual you have every reason to trust to keep your breach of confidentiality to himself or herself, think through what the worst consequences will be if your trust is misplaced.
- Follow Lesson 1.
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Facts: Law.com
Graphics: CUNY
Ethics Alarms attempts to give proper attribution and credit to all sources of facts, analysis and other assistance that go into its blog posts. If you are aware of one I missed, or believe your own work was used in any way without proper attribution, please contact me, Jack Marshall, at jamproethics@verizon.net.
Ethics Alarms 
Your word is your bond. If told to keep something in confidence, or there is an understanding to do so — then it should be bidden to. (period)
This is one of the inherent flaws with society which doesn’t stop at “insider trading”. It’s “okay” to tell my buddy, co-worker, etc, etc about XYZ secret that I was privy to — seems to be the common norm. I would suggest this agreement breaking concept would fall more into the honor department (which I suppose ethics can be melded into honor, as it would be difficult to be honorable, without good ethic.)