Legal Line vs. Ethical Line

Reader comment on: Steinberg Insider Trading Case Goes Too Far

Submitted by B. Lehman (United States), Dec 19, 2013 11:04

Sadly, when the line between what is ethical and what is legal becomes indistinguishable, it is almost a mathematical certainty that laws will be violated. In a nutshell, I believe, this is what happened at SAC and what happens at numerous institutions. Although company ethics programs may exist, they are meaningless if unenforced. I can't stress that last point enough. Failure to police & enforce ethics violations is as good as not having an ethics program and every employee knows it. In many companies the ethics violations that do get enforced are the most meaningless in terms of shaping behavior because the transgressions are so obvious -- for example, when an employee uses a racial or ethnic slur. Even in these cases the penalty, more often than not, is a function of position. Sr. executives that violate the most obvious ethics rules get one set of justice while jr. or support staff another.

More disurbing, the company culture is more at risk when subtle, but no less dangerous, ethics violations arise. In fact, in many cases when money is involved, the ethics violations are rewarded by executive management. This sets the cultural climate for the workforce. In short, if employees don't believe executive management sees any difference between what is ethical and what is legal, they will take things to edge. Consequently, the larger the chasm between a company's ethical line and the legal line, the less likely employees and management will violate the law.

I don't feel bad for Michael Steinberg because he saw no difference between ethical and legal transgressions. Instead of severely disciplining (or, at a minimum, severely admonishing) Horvath for possibly violating insider trading rules, he chose a quaint coded response in which he reminded Horvath that he should be careful about what he puts in writing. Whether or not Horvath violated the law to obtain the information is not relevant. The takeaway for Horvath in the exchange with Steinberg was be careful what you write in email, not how you obtain the information.

It's insulting to the average juror to think they can't understand what was transpiring. Had the defense's record included an email from Steinberg to SAC's HR about the exchange he had with Horvath and an HR follow-up with Horvath accompanied by proper ethics training about the possible violation, Michael Steinberg, in all likelihood, would be a free man.

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