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| Preface | |
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| Ethical Behavior | |
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| Introduction: The Case for Investment Ethics | |
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| Introduction-The Investment Industry- A Legacy of Scandals and a Need for Ethics | |
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| A Brief Overview of the Investment Industry | |
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| Securities Laws and Regulations | |
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| Investment Ethics Are Easier Said Than Done | |
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| Ethics Basics | |
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| Four Fundamental Principles of Investment Ethics | |
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| Costs and Benefits of Being Unethical | |
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| Conclusion-Developing an Ethical Consciousness | |
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| Appendix- Financial Market Regulatory Agencies | |
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| Fiduciary Duty of Investment Professionals- The Ethical Treatment of the Client | |
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| Introduction- What is A Fiduciary? | |
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| Agency Versus Fiduciary Relationships | |
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| The Role of Laws, Regulations, and Professional Standards | |
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| The Importance of Confidentiality | |
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| Conflicts in Finding the Right Investments | |
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| Conflicts in Trade Management- Best Execution | |
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| Conflicts in Trade Management- Soft Dollars | |
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| Identification and Fair Treatment of Clients | |
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| Conclusion-Disclose! Disclose! Disclose! | |
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| Appendix- Professional Codes of Ethics | |
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| Ethical Reporting of Investment Performance | |
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| Introduction to Ethics in Reporting Performance | |
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| Calculating Return: Predicting Future Performance or Measuring Performance for Current Clients? | |
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| Ethical Reporting of Risk Measures | |
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| Management Fees and Other Costs That Can Be Hidden | |
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| Time Periods Used to Estimate Historical Risk & Return Performance | |
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| Other Ways to Distort Historical Performance | |
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| Reporting Performance to Attract New Clients- Cherry Picking Accounts | |
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| Hidden Risks: Leverage, Short-Selling, Liquidity | |
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| Special Considerations with Valuing Securities that Don't Trade | |
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| Conclusion- The Crystal Ball | |
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| Appendix- Review of Investments Basics | |
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| Ethical Use of Information | |
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| Introduction- Information and The Search for Alpha | |
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| Information Asymmetry | |
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| Private Information-Talent | |
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| Trading On Inside Information | |
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| Trading on Trading by Insiders | |
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| Influential Publications | |
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| Direct Communication with Corporations | |
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| Investment Banking and Chinese Walls | |
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| Mosaic Theory | |
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| Front Running | |
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| High Speed "Flash" Trading | |
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| Mutual Funds And Information Advantages Arising From Stale Prices | |
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| Market Manipulation | |
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| Conclusion- Information And Fairness | |
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| Analyst Integrity | |
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| Introduction- Analysts and Their Ethical Obligations | |
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| Investment Recommendations-"Pickers" | |
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| Forecasters | |
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| Buy Side and Sell Side Analysts- Who pays for the research? | |
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| Behavioral Finance and Analyst Ethics | |
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| Star Analysts- Overconfidence and Regret Aversion | |
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| Herding -The Influence of Other Analysts | |
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| Other Behavioral Pitfalls | |
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| Originality of Ideas | |
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| Other Analyst Conflicts | |
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| Conflicts with Employers | |
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| Conclusion- Be Aware! | |
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| Ethical Security Analysis | |
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| Investing in Companies with Ethical Accounting Practices | |
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| Introduction- Reported Accounting Performance- Healthy Cynicism | |
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| The Source of Accounting Distortions-Accruals | |
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| Discretionary and Non-Discretionary Accruals | |
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| Managers' Incentives to Manage Earnings"Cookie Jar" Reserves and "Big Baths" | |
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| Aggressive Revenue Recognition | |
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| SPE's and Hidden Debt | |
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| Quality of Earnings | |
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| Earnings Smoothing: Is It Ethical? | |
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| Conclusion- Cash Versus Accruals- Be Skeptical! | |
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| Investing in Companies with Good Corporate Governance Practices | |
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| Introduction-Corporate Governance and its Importance to Ethical Analysts | |
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| Countrywide Financial Corporation- A Case of Weak Corporate Governance and Unethical Business Practices | |
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| The Role of the Board- An Overview | |
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| Who Makes a Good Director? | |
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| Effective Board Structure | |
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| Director Compensation and Shareholdings | |
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| The Nominating Process, Voting Rights, and Potential Conflicts | |
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| Executive Compensation- Structure and Incentives | |
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| Option Grant Abuses | |
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| Golden Parachutes, Golden Hand-cuffs, Golden Coffins | |
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| Horizon Problems And The Firm's Long-Run Profitability | |
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| Shareholders' Rights and The Takeover Market | |
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| Conclusion- Shareholder's Rights and Conflicts | |
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| Appendix- Review of Stock Options | |
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| Socially Responsible Investing | |
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| Introduction- Directing Financial Capital to Benefit Society | |
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| Stakeholder Theory | |
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| Positive and Negative Screens | |
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| Socially Responsible Mutual Funds | |
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| Performance- Can You Do Well By Doing Good? | |
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| Shareholder Advocacy | |
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| Divestment | |
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| The Special Role of Pension Funds, University Endowments, and Foundations | |
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| Community Investing and Micro Finance Lending | |
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| Islamic Finance | |
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| Conclusion- Obstacles To Doing Well While Doing Good | |
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| Cases | |
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| UBS and Morgan Stanley- An Elaborate Insider Trading Scheme | |
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| Emulex and Mark Jakob- Market Manipulation with False Information | |
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| Fidelity Traders and Gifts from Jefferies- Soliciting Brokerage from Traders | |
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| Heartland Advisors and Bond Funds- Misrepresentation of Bond Values | |
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| A.G. Edwards and Variable Annuities- An Inappropriate Investment | |
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| Charles Hintz and Sanford Bernstein- Analysts' Conflicts with Personal Holdings | |
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| Nicholas Cosmo and Agape World Inc .- A Ponzi Scheme | |
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| Former CEO of NYSE's, Grasso's, Pay Package | |
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| Nick Leeson and Barings Bank- Rogue Trader | |
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| Kellogg's "Matched" and "Washed" Trades- Tax Avoidance or Market Manipulation? | |
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| - Qwest Communications International - Accounting Fraud and Overstated Revenues | |
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| Refco- Misrepresentation and Hidden Debt | |
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| Salomon Brothers and the Treasury Market- Cornering the Market | |
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| Merrill Lynch and the Internet Boom- Analysts' Conflicts | |
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| John Mangan and Short Selling -Inside Trading | |
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| Merrill Lynch and Bank of America Merger- Bonuses Paid to Merrill Employees -Excessive Compensation? | |
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| Canary Capital Partners LLC- Mutual Fund Abuses | |
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| J�r�me Kerviel and Soci�t� G�n�rale- Rogue Trader | |
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| WorldCom- Capitalizing Operating Expenses, an Unethical Accounting Practice | |
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| The Squawk Box- Front Running | |
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| Morgan Stanley- Brokerage Commissions and Brokerage Abuses | |
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| Brian Hunter and Amaranth Advisors-Market manipulation of Natural Gas? | |
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| The Bayou Group- False Reporting | |
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| Morgan Stanley- Analyst's Coverage and Investment Banking Business | |
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| Bernie Madoff- The Largest Ponzi Scheme in History? | |
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| Enron- A Case of Extreme Hubris | |
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| UnitedHealth- Back Dating Stock Options | |
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| First Cash Financial Services- Pay Day Loans and Return | |
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| Johnson & Johnson and the Tylenol Scare- Did Recall Hurt or Help Shareholders? | |
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| Infrastructure Funds- An SRI Investment? | |
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| Glossary | |