• April 2nd, 2016

Loyalty, But to Whom?

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Ethics Case: Loyalty, But to Whom?
Glen Grossmith is an outstanding family man, a frequent coach for his children’s teams, and a dedicated athlete who enjoys individual and team sports. One day, his boss at UBS Securities Canada Inc., Zoltan Horcsok, asked him to do a favor for a colleague, Mark Webb, with whom they had done business for awhile. Glen did the favour without asking why it was needed. Here is the story of what happened.
• “At about 2:30 p.m.” on February 4, 2004, “Mr. Webb called Mr. Horcsok. “I need your help with something badly right away,” Mr. Webb told the Toronto trader. The two spoke soon after, working out a way to call one another without being taped. Mr. Webb, according to Mr. Horcsok, then told him: “You need to find a buyer for 10,000 Phelps Dodge. I may have a problem … you’ve got to be quick.”
• Mr. Horcsok then told Mr. Grossmith he needed a Canadian buyer for the Phelps Dodge shares.
• Without knowing the details behind Mr. Webb’s request, Mr. Grossmith got in touch with a client and asked the client to buy the shares. The client agreed.
• Mr. Horcsok then spoke to about a dozen traders in the Toronto office, trying to find a trade ticket stamped at about 2:15 P.M. “Webb is in trouble,” he told his traders, according to the settlement documents.
• Eventually, a ticket time-stamped 9:43 A.M. was found. Mr. Grossmith, with Mr. Horcsok’s knowledge, crossed out the stock trade that the ticket recorded and changed it to the Phelps Dodge symbol. Client information was also changed to reflect the Canadian buyer of the Phelps Dodge stock.
• He also sent “fabricated” trade information to Mr. Webb, the settlement document states. Mr. Grossmith also created an electronic ticket reflecting the Phelps Dodge trade, while Mr. Horcsok later destroyed the altered paper trade ticket, according to the settlement.1
Unfortunately, for Glen and Zoltan, their activities were investigated and discovered by their employer. It turned out that Mark Webb needed the trade covered up because he was retaliating against a client and the client complained to UBS in the U.S. Regulators in the Market Regulation Services Inc. (RS) from the Ontario Securities Commission picked up the trail and subsequently claimed that:
• “… Mark Webb, a trader who worked at UBS’s office in Stamford, Conn., received an order from a client to buy 120,000 shares of Phelps Dodge Corp. However, once 6,000 shares were bought at about 2:18 p.m., the client cancelled the rest and moved it to another investment dealer.
• Mr. Webb became angry and bought 10,000 Phelps shares for UBS’s principal account in what RS alleges was “retaliation.” After the client complained to UBS, Mr. Webb—who was fired along with Messrs. Horcsok and Grossmith in February—claimed the shares had been bought for a Canadian client, “when in fact they were not,” RS said.2
Unfortunately for Horcsok and Grossmith, they
• … were fired by UBS in late February over conduct that occurred earlier that month, [and] were denied their 2004 bonus by the investment dealer. The two brokers have sued UBS, with Mr. Grossmith seeking $1,053,000 and Mr. Horcsok seeking $1,750,000, which they claim is owed to them as bonus. Both claim they are owed the money because the conduct over which they were fired took place in 2005, not in 2004.
• Additional court documents filed by Mr. Grossmith say UBS’s reputation was “in tatters” by early 2005, following its settlement of unrelated allegations with RS in late 2004. He also claims UBS is improperly using him “as an example to try to enhance its reputation with the regulators.”
• But UBS spokesman Graeme Harris said yesterday the two men did not receive 2004 bonuses because of “misconduct, breach of UBS’s policies and code of conduct and jeopardizing of UBS’s reputation and business.”
• They were fired before the bonus payout date, and were therefore not entitled to one, Mr. Harris said.
• Furthermore, the figures the two are claiming aren’t the sums that would have been awarded to them even if they had received a bonus from UBS, Mr. Harris said.3
Ultimately, on July 18, 2005, the two brokers
• … settled regulators’ allegations that they falsified information and records to cover up a trade made by an angry U.S. colleague retaliating against one of his clients. Glen Grossmith, a former sales trader at UBS, and Zoltan Horcsok, his supervisor and former head of equity sales trading at the brokerage, have been fined $75,000 and $100,000 respectively. Each man will also pay $25,000 in costs to Market Regulation Services Inc. (RS) as part of the settlement deal approved yesterday.
• “What we see here are two traders who falsified information and falsified trades to cover up the wilful action of a colleague and that’s not acceptable,” Maureen Jensen, RS’s Eastern Region vice-president of market regulation, told reporters yesterday. “They need to bear the consequences.”
• Both senior traders have been suspended from trading on Canadian equity markets for the next three months, after which they must be strictly supervised for six months. Mr. Horcsok is also prohibited from acting as a supervisor for a year following his three-month trading ban.
• Lawyers for the two men said yesterday that both regret their actions. Mr. Horcsok had not been disciplined in the past. In 2000, Mr. Grossmith was fined $35,000 and suspended for a month by the Toronto Stock Exchange for several high-close trades he executed.4
• After over a year out of work, “Grossmith and Horcsok found employment at Scotia Capital Inc. following their ousters from UBS, but were fired last month, also in relation to the allegations settled yesterday.”5

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