How Serious Is Sam's Situation?

Q1 How serious is Sam's situation?

A: Sam had been working in First America for 6 months, and he began to work for a top salesperson, Linda who was on a new transaction for her largest account, Poseidon Cruise Lines. During the time, Poseidon Cruise Lines needed to build a boat which is constructed in a French shipyard. However, the shipyard only accepted francs. Without any cross-currency swap experience, Poseidon Cruise Lines turned to Linda.

During the transaction, Linda first dramatically exaggerated the need for secrecy and convinced Poseidon Cruise Lines do not speak to any other investment banks. By doing that, she had Poseidon Cruise Lines in her pocket and the company is completely isolated from outside information and had to believe whatever Linda throw at them.

Second, Linda charged unreasonably high price for the transaction. She asked Poseidon Cruise Lines 12.8%-13.4% interest rate which is significantly higher than French government bond rate while the French government had already give Poseidon Cruise Lines the privilege to borrow francs below market rate. So Linda may took the advantage that the treasurer and CFO of Poseidon Cruise Lines had not encountered cross-currency swap transaction in this scale and complexity and over charge the company. (12.5 million is way above average fee)

Now, the CFO and treasurer still had doubts about the fairness of the price. Linda told Sam to fax up-to-the-moment trading prices and rates around the world. The French bonds were subjected to a 10% government withholding tax if held by foreign investors and the rates incorporated the return of the withholding tax would increase the yields by 100-120 basic points. Poseidon Cruise Lines was totally kept in dark about the withholding tax. Sam wanted to inform Poseidon Cruise Lines but was forbidden by Linda. So Sam was in a dilemma that he felt it was wrong not to tell the client about the hidden information while his boss, Linda forbade it. By telling the client the whole story, Sam might lose his job which he just started for 6 months.

Q2What are the ethical issue confronting Sam?

A: As an employee in First America, Sam had the duty to bring more profits to the company and follow the indications managers appointed. By doing this transaction, first America would gain a fee of 12.5 million dollars, a huge number. In addition, it was also Sam's duty to inform his client fully, while Sam's boss wanted him to conceal some critical information. So Sam was in a classic situation that "Loyalty cannot be satisfied on both sides"（忠义不得两全 in Chinese) Sam also had the right to report this to higher management, etc the VP of First America, however, Sam thought he hardly know the VP and the "snitch" is making him uncomfortable, therefore he eventually not to. For best practice, Sam felt that it is nature to have