Conflicts of Interest in the News: 010712 Edition

Three stories of particular note this week:

“Is It a Conflict of Interest? Yes, but It’s Legal.”  “In most states and municipalities, government officials who vote to spend taxpayer dollars on proposals that also put money in their own pockets as lobbyists could be accused of illegal conflicts of interest. Not in Illinois.”  For more information about the general topic here see  this  earlier post about COIs in local government and  note that the big picture question (for me) is this: given the financial crunches in which  state and local governments increasingly find themselves,  will stricter approaches will be taken to these sorts of COIs?  Put otherwise, will voters see that we may have lost our margin of ethical error?

“Citi Analyst Lures Hot Internet IPOs” (may require registration).  This is a follow-up to what may have been the most significant COI story of the last decade – concerning securities analysts.  Rules issued in the wake of that scandal “‘dramatically reduced the blatant hypocrisy’ of analysts issuing ‘buy’  recommendations publicly while they privately told bigger customers to sell,’ said Jay Ritter, a finance professor at University of Florida. But analysts can serve as ‘rainmakers,’ he says, to win IPOs and get paid more along the way.  In Mr. Ritter’s view, that is a lesser conflict, but some investor advocates claim conflicts remain. ‘You still have analysts being used to tout stocks to generate  underwriting fees,’ said Jacob Zamansky, who represents investors seeking to recoup losses from Wall Street. He called the changes ‘cosmetic.’”

Note: in a future post I’ll revisit this intriguing and important page of COI history, which (among other things) gave rise to the immortal saying of one analyst (later barred from the securities industry): “What used to be a conflict is now a synergy.”

Swiss Central Bank Boss Denies Insider Trading.  “Dismissing allegations he placed the trade himself, he insisted it was carried out by his wife …without his knowledge.”  The broader lesson here may be that where the appearance of a  COI can be especially harmful (which is presumably the case involving a suspiciously timed currency trade made by the spouse of a high ranking central banker) individual honesty alone is not enough – one also needs to be attentive to the actions of family members.  Another way to view this: sometimes families need compliance programs.