The Wall Street Journal-20080125-A -Chinese Wall- May Not Keep Out the Ethics Threat
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A 'Chinese Wall' May Not Keep Out the Ethics Threat
Your article on investment banking firms buying stocks of target companies for their own account or for their customers while advising the acquiring companies ("Trading in Deal Stocks Triggers Look at Banks," Jan. 14) notes that firms use "Chinese Walls" to separate the traders at the firm from the investment bankers. A Chinese Wall may or may not be effective in preventing the transfer of inside information within the firm, but even if it is effective it does not provide the firm with immunity from disciplinary action or lawsuits. A firm that voluntarily enters into conflicting fiduciary relationships cannot recognize its duty to one while ignoring its duty to the other. For example, if the firm's purchases of the target company's stock and additional leakage of information of merger negotiations have the effect of increasing the price that the acquiring company pays for the target company, the acquirer may well have cause to complain, regardless of whether or not the firm has a Chinese Wall.
Norman S. Poser
Professor of Law Emeritus
Brooklyn Law School
Brooklyn, N.Y.
