Why I Broke Wall Street’s Code of Silence

Illustration by II

Illustration by II

An anonymous analyst, a medical fraud, and the $2.5 million thank-you gift.

The other day, a colleague and I made $2.5 million. We were paid for doing the right thing, which doesn’t happen often in our neighborhood. Wall Street rarely rewards integrity.

A career as a financial analyst isn’t particularly sexy. By and large, we’re not like the high-rolling traders and dealmakers who populate Hollywood scripts, drinking expensive Scotch at swanky downtown bars. We’re the men and women who pore through voluminous amounts of publicly available information and apply complex financial models to assess a company’s strengths and weaknesses. We look at organizations the way a physician examines a patient, who reports symptoms and relies on him or her for a diagnosis.

Unlike doctors, for a host of complex reasons, we typically stop short of the cure.

We analysts regularly spot irregularities that ignite curiosity. Most often, there are perfectly good explanations for an incongruity. But not always.

Sixteen years ago, I discovered what looked like fraud at a financial services company and alerted the Securities and Exchange Commission. Despite providing hundreds of pages of detailed analysis, the regulator didn’t act. I’m not even sure anyone read it. Ultimately, the fraud led to bankruptcy and delisting — shareholders were left with nothing. This unnecessary and avoidable tragedy brought me no gratification. Instead, I grew skeptical of the SEC’s willingness to act on credible and well-researched tips. Going forward, this skepticism led me, and doubtless many of my peers, to turn a blind eye to potential frauds.


Other factors in the risk-reward calculus also weighed on my reticence to speak out over the years. Placing anything other than a buy rating — even voicing the slightest criticism — can shut off access to the very management we depend on for critical information. We can be ostracized by our own firms for impeding their ability to conduct investment-banking business with the companies we cover. Many of us operate under strict confidentially agreements that, albeit illegally, may attempt to prevent us from reporting irregularities to regulators.

And let’s not forget that being a “rat” violates Wall Street’s implicit code of silence. We have to ask, but we don’t have to tell.

When Orthofix crossed my desk seven years ago, a colleague and I spotted irregularities at the medical device manufacturer that reeked of fraud. By that time, the SEC whistleblower program existed, promising anonymity, employment protections, and significant financial incentives. The SEC created a platform for tip intake and formally encouraged whistleblowers — a stark contrast to the indifference I had encountered years earlier.

My colleague found a law firm that represented whistleblowers and asked me to join him in filing a claim. We built as close to a bulletproof case as anyone outside the kimono could make. We calculated the scope of revenue overstatements within 2.3 percent of the company’s restatement once it was caught with its pants down.

As to whether I outed Orthofix for selfish motives, the answer is no. I’ve never bought or sold short Orthofix stock. It’s just a company that came across my desk in the ordinary course of my workday. The better question is: Where were the official lines of defense? The company’s auditors, executives, and compliance personnel had a fiduciary duty to detect and report misconduct. But they didn’t. The reality is that markets require all hands to clean the street. It’s dirty; we know it. Corruption disrupts our attempts to ensure free and fair markets. Worse, it hurts investors.

Analysts are perfect whistleblowers. Using our expertise to identify irregularities and misconduct is not only public service; it also channels what we truly love about our work: the unearthing, the highly complex analysis, and old-fashioned investigative prowess. We can construct blueprints of wrongdoing in ways others can’t, because that’s our everyday.

Two and a half million dollars later, are my colleague and I mercenary opportunists? Absolutely not.

But make no mistake. If and when we encounter another financial fraud, we will act.

By a veteran financial analyst, whose identity Institutional Investor has verified and agreed to keep confidential, owing to fears of retaliation and industry blackballing.