Conflict of Interest

As it is customary, audits are performed within a ‘Chinese wall' environment and auditors are bound by law not to disclose any information to third parties nor to other colleagues within the firm. Reason being, auditors have unrestricted access to sensitive financial information that can be used to front run markets.

One particular late Friday night, a couple of us were sitting at a bar close to the client's Head Office and after a couple of drinks, Donald, a colleague and good old friend of mine working on the same audit asked me point blank whether I would entertain making use of the privileged information we held and buy shares before the company released its results, which were due in less than 3 weeks. The company had done remarkably well that year and we knew that such results would have had a significant impact on the share price. I was shocked at this jaw dropping indecent proposal. I assumed that it was the beer talking and not him.

On the way home, I could not help thinking about the money I could make on the back of this information. I must admit, that throughout the audit, this idea had already loosely crossed my mind, but at no point I took it seriously and never thought of actually taking action on my privileged position. Besides the moral aspects of the situation, I also knew the legal repercussions including the withdrawal of my professional warrant. However, all these consequences became secondary, and I started thinking on ways to do the deal without getting caught – this is where I started to scare myself. The next morning, after a cold shower, I realized that I was being very silly and laughed off the scary thoughts I had in my mind the previous night.

The following Tuesday morning, I crossed Donald at the entrance of our client's car park. The first thing he told me was "I did it – I bought the stock". This was wrong on so many fronts.

I had really hoped that Donald was drunk that night or perhaps he was just joking about the whole story. Now I was put in a very awkward position. By him telling me, I was ‘conflicted' which means that technically and legally, I had the fiduciary duty to report Donald to my Partner in charge and the Risk Compliance Officer. However, Donald knew I wouldn't have exposed him given our good friendship. I believe Donald told me to induce me in following him in the act. Donald had committed a criminal offence, that