What Is a Rogue Trader?
When most people think of financial institutions such as investment banks, they generally think of the bank’s’ customer-focused advisory branch. These advisors help investors make complicated financial decisions regarding how to invest their money and plan for their future.
However, investment banks almost always have a second branch that consists of traders who make securities transactions using the bank’s own finances. Most investment banks are active traders in their own rights, paying professional investors to conduct trades according to specified guidelines and risk tolerances.
But what happens when an investment bank doesn’t adequately monitor its traders and one of these individuals makes ill-advised transactions on behalf of the bank? These are the circumstances under which rogue traders appear.
Poor Internal Controls Result in Rogue Traders
Most financial institutions have effective internal controls that monitor the transactions made by their paid investors. In fact, many investment banks require trades to be reviewed and approved.
Smart investment banks at least monitor the activity of their traders on a constant basis, even if they don’t require reviews and approvals. Monitoring allows the bank to catch a trader who’s about to engage in a series of bad transactions—before things get out of control.
Rogue Trading Isn’t Always Intentional
Most rogue traders don’t intend to go rogue. Instead, a trader might make a bad transaction that costs the bank a substantial amount of money. Fearing for his or her job, the trader then makes increasingly risky trades in an effort to recover the money lost, only to have them spiral out of control and lose more and more money.
This is the point where a trader has “gone rogue.” Rogue traders often cost their employer so much money that they force the institution into bankruptcy.
Covering Up a Rogue Trader
Even when the investment bank doesn’t go bankrupt, the bank sometimes tries to cover up what the rogue trader did. Disclosure would make the investment bank look bad, scaring off investors and clients alike.
This type of corporate cover-up is itself a form of fraud, however, and can get the investment bank into big trouble with the Securities and Exchange Commission (SEC). For that matter, the poor internal controls that allowed the rogue trading to occur can also be eligible for sanction.
Report Rogue Trading to the SEC
If you know of a rogue trader that’s gone undisclosed, or if you know of poor internal controls that could allow rogue trading to happen, the SEC might be interested in hearing what you have to report. Meissner Associates can help you submit your tip to the SEC and potentially claim a substantial whistleblower reward.
Find out today by discussing your information with an attorney experienced in whistleblower law. Just complete the form below or call us at 1-866-764-3100 to get started today.