Inside information? Mr. Martin was, until recently, head of investor relations at Verband, a Fortune 500 company. He had risen steadily through company ranks, due to his infallible judgment and ability to tell the company story in a most marvelous way. This was not an easy task, as Verband had a habit of covering up its blunders. The company had major discrepancies in its accounts and, in particular, lied to stockholders over the years about the lack of progress in its overseas operations.

However, Martin was adept at putting the company in the best light while diverting attention from any discrepancies. The private banking division at EuroBank, however, had been scrutinizing Verband carefully on behalf of its clients. The research team contacted Martin numerous times with penetrating questions, which he always skillfully deflected. The research team was so impressed that they recommended that EuroBank try to hire Martin. Due to a very generous offer and rumors that Verband was looking for a buyer,Martin transferred to EuroBank. He quickly became as successful as he had been at Verband. On one occasion, the head of private banking offered a wealthy client with large holdings in Verband a presentation by a former Verband insider, who of course was Martin.

Martin prepared the presentation carefully so as to use only data in the public domain to reveal the serious discrepancies in Verband’s statements. Revelation of anything more would have violated his contractual confidentiality obligations to Verband. The difference between Martin and any other analyst is that, as a former insider, he knew exactly where to look for the discrepancies. Following the presentation and a series of follow-up meetings with Verband management, the client sold his large holdings, causing the share price to plummet. Verband was subsequently taken over at a much reduced price.Martin and his colleagues at EuroBank are convinced that his presentation to the client was entirely proper. After all,Martin’s judgment is infallible.