Nick Leeson was an employee in Barings and was able to convince the bank to send him to Singapore to start the bank’s trading operations on the Singapore International Monetary Exchange (SIMEX). He then started making unauthorized speculative trades to try to increase his profits. Initially he got some good profits. But lady luck frowned upon him, and he started accumulating losses. Instead of confessing these losses, he used one of Barings’ error accounts to hide the losses. He was authorized to trade and settle his trades so he could easily hide his losses. Leeson had a total of around ₤827M in losses by 1994-95. This was twice the amount of trading capital that Barings had for the entire company! He then fled from Singapore. Later on he was arrested and sentenced.
There are some lessons to be learnt here
Aggressive Trades versus Unethical Business – It is good to be an aggressive investor as you get great returns compared to what you might get if you are a passive investor. But remember that there is a thin line between being aggressive and crossing the legal boundaries of trading.
Accept Failure – Everybody makes mistakes. It is better to admit your mistakes rather than being caught when it is too late. If the trader in the movie had admitted his initial losses, he might have been let off with some warnings/mild actions and maybe the bank would have been standing. You can ask for help from your colleagues when you make mistakes rather than covering up as they might have come across similar situations and might be able to give valuable suggestions.
Tell the truth – The world of finance is based on trust and you have to earn it. It is always better to be honest and tell the truth. This is irrespective of whether you are working for a company, selling a financial product or a financial planner giving advice on products/trades.
This movie can serve to be a valuable lesson to organizations as well - be it financial or otherwise. It is important to reward ethical behaviour, sound judgment, and appropriate decisions taken rather than simply rewarding numbers achieved and results obtained by any method. A revamp of the compensation structure may be needed for this purpose.
Unethical trading is a crime and when you are an employee of a financial institution, you should always remember that you are not dealing with your own money, but handling other people’s money. It is therefore important to be doubly careful in your transactions.
If you want a long successful innings as a trader/investor accept short term losses and trade ethically after doing your homework.