Ethics in Banking and Finance Case 20150414

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Ethics in Banking and Finance Case-Study:
The Story of Lukas Kamay and Christopher Hill
“Insider trading is the trading of a public company's stock or other securities (such as bonds or stock
options) by individuals with access to nonpublic information about the company. In various
countries, trading based on insider information is illegal. This is because it is seen as unfair to other
investors who do not have access to the information as the investor with insider information could
potentially make far larger profits that a typical investor could not make”1.
There are strict laws about insider trading worldwide. In fact Utpal Bhattacharya and Hazem Daouk2
state that “though the debate about the pros and cons of allowing insider trading in stock markets
has been quite contentious in the law, economics and finance literature, it seems that from the point
of view of actual practice, the debate seems to have been settled. In (their) comprehensive survey of
insider trading regulations in every country that had a stock market at the end of 1998, this paper
finds that all of the 22 developed countries, and four out of five of the 81 emerging markets, had
insider trading laws in their books. The enforcement of these laws, however, has been spotty. We
find that there has been a prosecution in only one out of three countries. Developed countries have
a better record of prosecution than emerging markets (81.8% of developed countries, and 24.7% of
emerging markets have had prosecutions). The establishment of insider trading laws – is not
associated with a reduction in the cost of equity. It is the difficult part – the enforcement of insider
trading laws – that is associated with a reduction in the cost of equity in a country”. These views are
largely supported by the recent paper by Thompson (2014)3.
The recent court case involving two former Monash graduates Lukas Kamay and Christopher Hill 4
highlights many of the issues and problems involving detection, prevention and of finally
prosecution of insider trading. These lead to broader consideration about ethics in the firm and of
course how ethical behaviour is encouraged and implemented at home, school and society more
generally. Certainly there are many examples of either firm specific codes of ethical conduct as well
as industry based ones. See for example: The Australian Bankers Association Code of Banking
Practice and a specific example from the Commonwealth Bank5.
A recent discussion provided by the Fidelis International Institute highlights a number of ethical
issues that face the banking industry more generally6, which suggests that individual trading
behaviour while important is really just one of many issues that must be addressed. Others include
1

http://en.wikipedia.org/wiki/Insider_trading
http://www1.nyse.com/pdfs/bhattacharya.pdf
3
Thompson, J. 2014, A Global Comparison of Insider Trading Regulations. International Journal of Accounting
and Financial Reporting. ISSN 2162-3082, 2013, Vol. 3, No. 1
http://www.macrothink.org/journal/index.php/ijafr/article/viewFile/3269/2976
4
See: http://www.abc.net.au/news/2015-03-17/pair-sentenced-over-abs-insider-trading/6324526 and the
links at the bottom of the page. Also, see
http://www.smh.com.au/business/banking-and-finance/insider-trading-masterminds-lukas-kamaychristopher-hill-jailed-after-block-bid-20150317-1m0tzu.html
5
Australian Bankers Code: http://www.bankers.asn.au/industry-standards/ABAs-code-of-banking-practice
Commonwealth
Bank
Code:
https://www.commbank.com.au/about-us/customercommitment/practices/codes-of-conduct.html
6
See: http://www.fidelisinstitute.org/article.php?se=13&ca=22
2

the financing and support of totalitarian regimes or unscrupulous firms, or firms that leave a large
ecological footprint.
Discussion Questions:
1. Explain what actually happened with Kamay and Hill and why it was insider trading.
2. Do you think that Kamay and Hill should have been sent to jail? What would have been a
reasonable punishment for their crimes?
3. “Yes, they committed a crime under law, but was it just their fault? The firms they worked
for should have taken greater responsibility to prevent these crimes being committed in the
first place. After all, this type of trading behaviour is actually encouraged in banks. The only
difference is these two tried to make money for themselves not their institutions! Had they
just made money for their institutions no one would have said anything”. Do you agree?
What should the firms they worked for have done or done better?
4. We will be discussing industry and firm codes of conduct later, but in the case of Kamay and
Hill do you think that these existing codes and rules in their respective organisations were
sufficient? What more should be said (written down as specific codes) and what action
should be taken at a corporate level to prevent individuals acting against law, or firm
policies?
5. The Fidelis International Institute discussion suggests that banks intrinsically face many
ethical dilemmas. They also ask the question whether better banking is possible. Do you
think that it is possible for banks to be better corporate citizens despite the culture they
actively encourage?

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