Ethics in Finance

Kayur Asher 04
Jigar Desai 13
Parthik Gosar 18
Punit Joshi 25
Sahil Sanghvi 48

Financial
Services

Ethics
in
Finance
Financial
Management

Financial
Markets

Financial Services
Deception:

act of misrepresenting
relevant information
Churning: Excessive or inappropriate
trading for clients account by a broker
who has control over the account with
intent to generate commissions rather
than to benefit client
Unsuitability

Financial Markets
Fairness in Markets
1.
2.
3.
4.

Fraud and Manipulation

Equal Processing Power
Equal Bargaining Power
Efficient Pricing

Financial Management
Earnings

Management
Fraudulent Asset Valuations
Creative accounting form of
financial reporting so as to
provide misleading
information.
Executive Compensation

Insider Trading
Insider tradingis the trading of apublic company'sstockor
othersecurities(such
asbondsorstock
options)
by
individuals with access to non-public information about the
company.
As per SEBI (Prohibition of Insider Trading) Regulation, 1992
insider means any person who,
1. is or was connected with the company or is deemed to
have been connected with the company and is reasonably
expected to have access to unpublished price sensitive
information in respect of securities of company, or
2. has received or has had access to such unpublished price
sensitive information

Problems
Much of the uncertainty in the law on insider trading
revolves around the relation of the trader to the source of
information.
The key point is that a person who trades on material and
nonpublic information is engaging insider trading when;
1. The trader has violated some legal duty to a
corporation and its shareholders
2. The source of the information has such a legal duty
and the trader knows that the source is violating that
duty

Why is it unethical?
Two main philosophies are;
1.

2.

Inside Information as property: This argument

holds that those who trade on material
nonpublic information are essentially stealing
property that belongs to the corporation.
The fairness argument: This argument holds that
traders who use inside information have unfair
advantage over other investors thus rendering
stock markets as not a level playing field.

SUN-RANBAXY: INSIDER TRADING?

Writ Petition
Ranbaxy share price
Apr 1: 370
Apr 4: 459
24% increase in Ranbaxy shares from Apr 2-4
Ranbaxy trading volume
Over 3.75 cr shares traded from Apr 2-4
That's 5 times daily average trading volume of
23.15 lakh shares
Second allegation of insider trading
Purchase of Ranbaxy shares by Silverstreet
Developers a 100% subsidiary of Sun Pharma

Diversion of Funds by
KFA

ETHICAL ISSUES IN
1.

Governance
Spirit of Collective responsibility not conserved
Too much power in hands of very few
Regulation toothless with only advisory powers
Transparency and objectivity of DOT was put to
question because of some corrupt officials
Personal greed puts business ethics at stake

2. Crony Capitalism
Spirit

of fair competition not observed

Middle men used for access to those in power
Pure pursuit of profit from companies Uninor
& Swan
Profit was the main driving force no intention
to serve consumers
Neutrality of media questionable

The Sahara Case

SPOTTING CREATIVE ACCOUNTING

 Changed

depreciation from WDV to SLM

method
Instead of Showing 772.49 Cr Loss it
showed 143 Cr profit for June quarter
(915 cr. Profit In exceptional item due to
depreciation)

Financial Statements: RED

FLAGS
Booking

Sales Early
Booking Sales Late
High Proportion of Goodwill
Changing Depreciation Methods
Large Related Party transactions

THANK YOU !!!

ANY QUESTIONS ?