Prosecutor & Judge Miss The Beat

My son is graduating from college in May, just a few weeks away, and is looking for a job.  I want to be helpful, if I can. He’s a good kid. I’m proud of his accomplishments and I want to see his career launched in the best way possible.

My yearnings, I suspect, are not unique.  In fact, I think that it is genetic and part of human nature.

I also suspect that Daniel O’Donnell feels the same way about his son, John O’Donnell.  His fatherly inclination is to help him. This is not a criticism, but rather a statement of the obvious.

The challenge, however, is that Daniel O’Donnell was until recently the chief operating officer of Guidepost Solutions, a compliance and security firm which has been hired to oversee John O’Donnell’s employer, Point72 Asset Management, the successor firm to SAC Capital. As reported by the New  York Times on Wednesday, it is unclear what Daniel’s O’Donnell’s new role will be.  Presumably, however, he has not retired from the firm

Yes, the father’s firm is overseeing his son’s employer.   This just doesn’t feel right.

And yet yesterday, Judge Laura Taylor Swain approved the SEC’s settlement with SAC Capital on insider trading charges, including a $1.2 billion penalty to be paid by SAC, which also included this father/son compliance arrangement.

No doubt that Guidepost Solutions will impose “firewalls” and other procedural impediments to limit the senior O’Donnell’s activities as relates to junior O’Donnell’s employer.   Lawyers are adept at devising structures which eliminate per se conflicts.

In fact, over the years, I too engaged in crafting these very lawyerly type structures.

However, I would think that after Enron, Lehman Brothers and the Financial Crisis of 2009 that the players in the financial markets would have learned the lesson that not only should per se conflicts be avoided, but that all appearances of impropriety should be avoided.

As a fiduciary for retirement plans, I want to emphasize that all real conflicts and “appearances” of conflicts should be avoided… at all times. The plan participants and beneficiaries on whose behalf I work, deserve no less.

I do not want to be misunderstood here.  I have no doubt that Guidepost Solutions and Daniel O’Donnell possess impeccable credentials and abide by the highest ethical standards. It is simply that these inter-twined relationships do not pass the smell test.

Given the significance of the SAC settlement, along with the symbolism of the victory for the SEC, is Guidepost really the only firm available to provide these oversight services?  Wouldn’t the entire system be better off had another firm been selected?

To a certain extent, the primary responsibility for this imbroglio rests not with Guidepost, Point72 Asset Management, nor the O’Donnells.  Instead, it behooves Preet Bharara, the United States attorney, and Judge Swain to explain their thinking.   If well respected prosecutors and jurists have a tin ear for conflicts, then what can we expect from the ambitious young masters of the universe who drive our capital markets?

Lawyers get out your pens (I date myself).  Opaque clever structuring seems to be back in style.





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