In the filmmakers’ introduction given before the Sept. 20, 2018, showing of the documentary Collared at the Hot Docs Ted Rogers Cinema, Garrick Apollon and Étienne Trépanier suggested that “documentaries do what other films can’t…bring people together and spark debate.” In this particular case, it could be added that this documentary does what CFA’s exam content and workplace training can’t—it brings to life the reality of what can happen when someone ignores the ethical standards that form the basis of our profession.

The film itself delivers a powerful message, but some of the ideas explored in the panel discussion helped to clarify a few unanswered questions—specifically, what should be done to prevent professionals with access to material, non-public information from using it for their own advantage? The panel included representatives from the legal, investment, and accounting professions: Emily Cole (investigations and defence lawyer); Douglas Cumming (professor of finance, Florida Atlantic University); and Kelly Ohayon (managing director, financial governance and controls, BMO Financial Group). Unexpectedly, the panel also included the subject of the documentary, Joseph Grmovsek, the only person in Canada who has (to date) been criminally convicted for insider trading.

“It was about solving the puzzles; once those were figured out, he was looking for the next puzzle to solve.”

During the discussion, the panel touched on the idea of insider trading as a “victimless crime.” Indeed, one can argue that investors and capital markets are the victims, but these still feel like faceless or abstract casualties. The issue was made more realistic and concrete, however, when the panellists reminded the audience that our clients are actually the victims. Clients divulge secrets and confidential information to us, as their advisors, hoping we can help. Clients look us in the eye and ask us to share our expertise. We’re breaching this confidentiality and trust when we use that information for our own benefit.

Expanding on material not covered in the film, the panel explained the theory behind the three factors required for someone to follow through on fraudulent activity, known as the “fraud triangle”: motivation, opportunity, and the ability to rationalize one’s actions. Interestingly, a fourth factor was also suggested: human capacity. Human capacity addresses the influence of ethics on our actions and “listening to your inside voice” about whether what you’re doing is wrong. Grmovsek told us that he didn’t see himself as doing something wrong, as he’d seen others doing it (a point made in the film), and he didn’t betray his own firm—“That was a line I wouldn’t cross,” he said. In fact, as Grmovsek pointed out, he was helping his friends to make money. Furthermore, he suggested that he wasn’t motivated by the money—he didn’t have a flashy lifestyle. It was about solving the puzzles; once those were figured out, he was looking for the next puzzle to solve.

The panel also talked about the “slippery slope”— how often this type of behaviour starts with a small trade, sometimes unintentional, which no one notices. Confidence then starts to build, and the offender starts to take more risks. As investment professionals we’re familiar with the behavioural investment theory of how small early success can turn into overconfidence. This discussion of the slippery slope might have left some audience members reflecting on their own lifestyles—what “high-risk” actions they take that have become common or normal behaviour because they haven’t (yet) been caught.

The discussion naturally turned to how the system—regulators, companies, and individuals—might learn from Grmovsek’s example and prevent similar offences in the future. Ideas mentioned included the following:

• Teach ethics to students, covering not only laws and regulations but also fiduciary duty to clients. The CFA programme already does a good job of this through focusing on ethics and using case studies that reflect practical situations that aren’t ambiguous.
• Develop regulations that look beyond money as the motivation for committing an offence. As Grmovsek reminded us, it was the culture of competition that drove him to continue.
• Ensure that firms have a way for people inside and outside of the company to raise awareness if something is wrong. More importantly, firms also need to have resources and processes for following up and investigating any reports. The panel referenced the Ontario Securities Commission Whistleblower program (see story on page 14), which is seeing an increase in activity. Grmovsek, however, recommended that the suggested reward level (currently 5 percent to 15 percent of the monetary sanctions) should be increased so there’s more incentive for people to report.
• Recognize the increasing role of computer surveillance and artificial intelligence. These capabilities will allow firms and investigators to look for patterns of activity and repeat behaviour.
• Increase the resources within the regulator dedicated to investigations and enforcement. This should include resources with data mining and analytic skills.
• Use blue-collar methods, such as undercover agents, for white-collar crimes. This is costly, and prevention is still a more efficient method, but these methods would emphasize the severity of the crime.
• Increase diversity within firms, as studies have shown that fraud rates decrease when gender diversity improves.

While some improvements could be made to change our system and reduce the incidence of fraud and insider trading, it could be argued that the issue can’t be solved through rules and regulations alone—people have to see, and understand, the human impact of this crime.

And Collared showed that human impact. We also saw the human impact of this crime on Grmovsek as he sat on that panel and described his life today, driving home the point that he’s a broken man. He told the audience about some of the horrors he experienced in prison, and shared the heartbreaking reality of how this experience severed his relationship with his children and left him picking up random administrative jobs to pay the bills. Grmovsek’s experience reminds us all of the permanent price we can pay if we take what seems to be a calculated risk, and commit a victimless crime.