The financial services industry faces “a serious and growing ethical crisis,” with more professionals willing to commit insider training and fewer prepared to report them unless they can claim a cash reward for doing so.

The law firm Labaton Sucharow, which has a practice dedicated to representing SEC whistleblowers, presented those findings as part of its second annual U.S. financial services industry survey. From June 18-27, 2013, 250 professionals in the financial services industry – including traders, portfolio managers, investment bankers, hedge fund professionals, financial analysts, investment advisers, and asset managers – took part in the confidential, online survey.

Twenty-four percent of respondents admitted they would engage in insider trading if they could get away with it. Also, slightly more than half of the respondents believed that their competitors engaged in illegal or unethical behavior; 23 percent reported that they had observed or had first-hand knowledge of wrongdoing in the workplace; and 29 percent believed that financial services professionals may need to engage in illegal or unethical behavior to be successful.

"Wall Street needs to take the first step toward recovery and admit that it has a corporate ethics problem,” said Jordan Thomas, partner and Chair of the Whistleblower Representation Practice at Labaton Sucharow and former assistant director and assistant chief litigation counsel for the Securities and Exchange Commission. Thomas played a leadership role in the development of the agency's whistleblower program.

The survey found that 26 percent of financial services professionals believe the compensation plan or bonus system at their company incentivizes employees to compromise ethical standards or violate the law. Also, nearly one-fourth of respondents said they fear retaliation if they were to report wrongdoing. Fifteen percent felt leaders at their firm would fail to report insider trading violations to enforcement authorities if a top performer was involved.         

Respondents were more generous, and optimistic, when it came to their assessment of regulators. Sixty-two percent feel felt that the SEC is effective at detecting, investigating, and prosecuting misconduct, while 57 percent said the Financial Industry Regulatory Authority, the largest independent regulator of securities firms, was similarly effective. Since the last survey, conducted one year ago, each of these findings has nearly doubled. Also promising was that 89 percent of financial services professionals indicated a willingness to report wrongdoing given the protections and incentives offered by programs like the SEC's Whistleblower Program.

Coupled with the high percentage of individuals that reported having been aware of wrongdoing in the workplace and the fact that 60 percent of financial services professionals knew about the existence of the Whistleblower program (up from 49 percent one year ago), the researchers say this suggests the SEC and other enforcement authorities “can expect a substantial increase in submissions and assistance in the coming years.”