CFA Institute today expressed concern and disappointment regarding the announcement of the latest case of insider trading.

Last week, the U.S. Securities and Exchange Commission charged 14 defendants in what it called “a brazen insider trading scheme” that netted more than US$15 million in illegal insider trading profits on thousands of trades, using information stolen from UBS Securities LLC and Morgan Stanley & Co. Inc.

“Our organization is deeply troubled about the impact these ethics-related allegations have on investor trust,” said Jeff Diermeier, president and CEO of CFA Institute.

CFA Institute has developed standards of conduct and professionalism in several key areas, including investment performance reporting, soft dollar usage, and asset management. “We pay particular attention to the issue of insider information and the proper conduct of analysts,” said Diermeier, noting that the CFA Institute Code and Standards, which are more stringent than U.S. law, make it crystal clear that trading on insider information is always wrong. “Each day tens of thousands of investment professionals conduct themselves ethically and fairly. Meanwhile, a few individuals continue to flout the rules, reflecting poorly on an entire industry and profession. It demonstrates an unfortunate truth: regulating honesty is very elusive. If the allegations of scheming in this latest insider trading incident are true, it reveals how resourceful the offenders can be.”

Diermeier added that “we were outraged and dismayed to learn that one of the named individuals – Erik Franklin – was once a CFA Institute member. Even though Franklin never completed the requirements to receive the CFA designation, CFA Institute takes this very seriously. Our disciplinary program does not presently cover those who are no longer members, a matter our Board of Governors will soon be reconsidering. When events as egregious as this occur, our industry needs to take a hard look in the mirror and ask whether it is still able to police itself or will there be more government regulation.” Diermeier continued, saying that when the “gatekeepers” are part of the problem, as was the case here, penalties should be severe because of their added responsibility for building a culture of trust in the capital markets.

“We approach this with the knowledge that proper training and attention to ethics at an individual level, with continuous reinforcement, is part of the answer,” said Diermeier. “Some may never learn, but we hope the industry will join us in reaching out with a strong reminder,” he concluded.