When is improper trading that cost shareholders some $5 million and caused the firing, suspension or review of 56 employees not a crime? When it is a violation of a company's code of conduct. But does justice go far enough in leaving the matter to the organization to decide?
The scale of the scandal is huge in terms of the number of people involved, all working for a newly acquired unit of Transamerica Life Insurance Co. of Canada in Toronto. It follows the unprecedented indictment of 120 people in June on charges brought by the U.S. Department of Justice and the Securities and Exchange Commission. The scandal in Canada is a separate violation and jurisdiction. But improper activity might occur at any fund and victimize any investor.
Transamerica, a unit of Transamerica Corp. in San Francisco, deserves praise for, first, uncovering the improper activity and, second, swiftly dealing with it and promising to pay restitution to shareholders. An employee reviewing trading of the fund noticed unusual activity involving employees. Transamerica engaged Deloitte & Touche to help determine the losses to each shareholder, estimated in aggregate at $4 million to $6 million of the fund's $56 million in assets.
Aside from Transamerica's investigation, regulatory authorities are looking into the matter. Clearly it seems some of the 56 employees didn't abide by the unit's code of conduct that calls for employees to put clients' interests above their own. It seems too fine a line to limit the case to only a violation of a code of conduct. Regulators need to determine if legal charges are warranted. If not, regulators need to explain to the public why the buck stops at the code of conduct.
