Review the case studies below in the textbook. Prepare a one-page report for each of the following case studies

Review the case studies below in the textbook. Prepare a one-page report for each of the following case studies: Case Study: Loyalty, But to Whom?, pg. 322 Case Study: Banker's Trust: Learning from Derivatives, pg. 324 Requirements and Grading Rubric For Case Studies I. Requirements for Case Study Report For each case study assigned, write a one page (double spaced) summary of the most relevant facts of the case studies assigned for a certain week. Don't write more than one page, as there should be a careful consideration of what is most important about the case Your summary should include the following points: Present the facts most relevant to the ethical issues Answer two of the questions from the list presented below which would assist in understanding the ethical issues of the case or that might lead to a resolution of the ethical problem. Questions of fact Questions of interpretations Questions of analysis Questions of synthesis Questions of evaluation Questions of application II. Grading Rubric Format Typed Double-spaced Title Page with Assignment title, Student Name, Course Name, Week # and Date Reference Page Grading Rubric Documentation and Formatting - 5% A quality paper will include the items from format above Organization & Cohesiveness - 15% A quality paper will include an introduction stating the purpose/intent of the paper (5%). The body of the content will be derived from the assignment itself, and will be properly subdivided into sections based upon what the paper must address (5%). In a quality paper, the conclusion will summarize the previously presented content (5%). Editing - 10% A quality paper will be free of any spelling, punctuation, or grammatical errors. Sentences and paragraphs will be clear, concise, and factually correct. Content - 70% A quality paper will have significant scope and depth of analysis/research to support any statements. Relevant illustration or examples are encouraged. A quality paper will employ sound use of reasoning and logic to reinforce conclusion, and opinions ETHICS CASE: Loyalty, But to Whom? Glen Grossmith is an outstanding family man, a frequent coach for his children's teams, and a dedicated athlete who enjoys individual and team sports. One day, his boss at UBS Securities Canada Inc., Zoltan Horcsok, asked him to do a favor for a colleague, Mark Webb, with whom they had done business for awhile. Glen did the favour without asking why it was needed. Here is the story of what happened. \"At about 2:30 P.M.\" on February 4, 2004, \"Mr. Webb called Mr. Horcsok. \"I need your help with something badly right away,\" Mr. Webb told the Toronto trader. The two spoke soon after, working out a way to call one another without being taped. Mr. Webb, according to Mr. Horcsok, then told him: \"You need to find a buyer for 10,000 Phelps Dodge. I may have a problem ... you've got to be quick.\" Mr. Horcsok then told Mr. Grossmith he needed a Canadian buyer for the Phelps Dodge shares. Without knowing the details behind Mr. Webb's request, Mr. Grossmith got in touch with a client and asked the client to buy the shares. The client agreed. Mr. Horcsok then spoke to about a dozen traders in the Toronto office, trying to find a trade ticket stamped at about 2:15 P.M. \"Webb is in trouble,\" he told his traders, according to the settlement documents. Eventually, a ticket time-stamped 9:43 A.M. was found. Mr. Grossmith, with Mr. Horcsok's knowledge, crossed out the stock trade that the ticket recorded and changed it to the Phelps Dodge symbol. Client information was also changed to reflect the Canadian buyer of the Phelps Dodge stock. He also sent \"fabricated\" trade information to Mr. Webb, the settlement document states. Mr. Grossmith also created an electronic ticket reflecting the Phelps Dodge trade, while Mr. Horcsok later destroyed the altered paper trade ticket, according to the settlement.1 Unfortunately, for Glen and Zoltan, their activities were investigated and discovered by their employer. It turned out that Mark Webb needed the trade covered up because he was retaliating against a client and the client complained to UBS in the U.S. Regulators in the Market Regulation Services Inc. (RS) from the Ontario Securities Commission picked up the trail and subsequently claimed that: \"... Mark Webb, a trader who worked at UBS's office in Stamford, Conn., received an order from a client to buy 120,000 shares of Phelps Dodge Corp. However, once 6,000 shares were bought at about 2:18 P.M., the client cancelled the rest and moved it to another investment dealer. Mr. Webb became angry and bought 10,000 Phelps shares for UBS's principal account in what RS alleges was \"retaliation.\" After the client complained to UBS, Mr. Webbwho was fired along with Messrs. Horcsok and Grossmith in Februaryclaimed the shares had been bought for a Canadian client, \"when in fact they were not,\" RS said.2 Unfortunately for Horcsok and Grossmith, they... were fired by UBS in late February over conduct that occurred earlier that month, [and] were denied their 2004 bonus by the investment dealer. The two brokers have sued UBS, with Mr. Grossmith seeking $1,053,000 and Mr. Horcsok seeking $1,750,000, which they claim is owed to them as bonus. Both claim they are owed the money because the conduct over which they were fired took place in 2005, not in 2004. Additional court documents filed by Mr. Grossmith say UBS's reputation was \"in tatters\" by early 2005, following its settlement of unrelated allegations with RS in late 2004. He also claims UBS is improperly using him \"as an example to try to enhance its reputation with the regulators.\" But UBS spokesman Graeme Harris said yesterday the two men did not receive 2004 bonuses because of \"misconduct, breach of UBS's policies and code of conduct and jeopardizing of UBS's reputation and business.\" They were fired before the bonus payout date, and were therefore not entitled to one, Mr. Harris said. Furthermore, the figures the two are claiming aren't the sums that would have been awarded to them even if they had received a bonus from UBS, Mr. Harris said.3 Ultimately, on July 18, 2005, the two brokers ... settled regulators' allegations that they falsified information and records to cover up a trade made by an angry U.S. colleague retaliating against one of his clients. Glen Grossmith, a former sales trader at UBS, and Zoltan Horcsok, his supervisor and former head of equity sales trading at the brokerage, have been fined $75,000 and $100,000 respectively. Each man will also pay $25,000 in costs to Market Regulation Services Inc. (RS) as part of the settlement deal approved yesterday. \"What we see here are two traders who falsified information and falsified trades to cover up the wilful action of a colleague and that's not acceptable,\" Maureen Jensen, RS's Eastern Region vice-president of market regulation, told reporters yesterday. \"They need to bear the consequences.\" Both senior traders have been suspended from trading on Canadian equity markets for the next three months, after which they must be strictly supervised for six months. Mr. Horcsok is also prohibited from acting as a supervisor for a year following his three-month trading ban. Lawyers for the two men said yesterday that both regret their actions. Mr. Horcsok had not been disciplined in the past. In 2000, Mr. Grossmith was fined $35,000 and suspended for a month by the Toronto Stock Exchange for several high-close trades he executed.4 After over a year out of work, \"Grossmith and Horcsok found employment at Scotia Capital Inc. following their ousters from UBS, but were fired last month, also in relation to the allegations settled yesterday.\"5 Questions 1. Loyalty is a highly desirable ethical value, and disloyalty is a serious unethical and often illegal activity. Explain how and to whom Grossmith, Horcsok, and Webb were disloyal. 2. Although Grossmith's actions did not negatively affect the wealth of any client, why did UBS fire him? 3. How should an employer like UBS encourage employee loyalty? 1 ETHICS CASE: Bankers Trust: Learning from Derivatives* Bankers Trust (BT) was one of the most powerful and profitable banks in the world in the early 1990s. Under the stewardship of Chairman Charles Sanford, Jr., it had transformed itself from a staid commercial bank into \"a highly-tuned manufacturer of high-margin, creative financial productsthe envy of wholesale bankers.\"1 BT prided itself on its innovative trading strategies, which used derivatives to manage risks; its performance-driven culture; and its profits: The bank made a profit of over $1 billion US in 1993.2 Key to BT success was the dominance of its business in derivatives contracts in which companies make payments to each other based on some underlying asset such as a commodity, a financial instrument, or an index.3 The value of the paymentsand thus the contractis derived from those assets. Companies can use derivatives to lower financing costs, manage risk, or speculate on interest and currency rates. It is estimated that almost $400 million of BT's 1993 profits came from its leveraged derivatives business. Derivatives, with their high margins, held a preeminent position with BT management, with their fervent focus on the bottom line. At BT, each product and each trader was given a value that was based on what income the product or trader could bring the firm.4 The bank's intense focus on the bottom line decreased attention on products and services which had low margins but which fostered and nurtured client relationships. BT was known for courting customers only insofar as they would buy high-margin products.5 In 1990 Charles Hill, former co-head of merchant banking, left with thirty members of his department because he saw no room at BT for offering clients impartial financial advice and deal structuring. One source within the company explained: \"we got rid of the nurturers and builders the defensive guysand kept the offensive guys.\"6 Those who remained describe a firm driven by intense internal rivalry, endless politicking, and discussions about profit and losses. They describe a \"coliseum\" mentality at the top level: \"we look on while the guys are out there fighting the lions.\"7 What remained was a bank where the customer's interests appeared to come second to the bank's. It was within this context that BT, once one of the most powerful banks in the world, was disgraced by a series of highly publicized lawsuits brought forth by several of its clients in 1994 and 1995 over losses they incurred as a result of derivative products sold to them by BT. The clients contended that BT sold them the derivatives without giving them adequate warning and information regarding their potential risks. BT countered that these derivative deals were agreements between the bank and sophisticated clients who were now trying to escape from their loss-making contracts by crying foul.8 At issue was whether the clients were nave and should have known what they were getting into or whether BT deliberately deceived them (p. 110).9 There were more than half a dozen companies that suffered losses as a result of derivatives due to BT's allegedly fraudulent sales practices (Appendix 1), but the Procter & Gamble (P&G) case is representative of the other cases. The relationship between P&G and BT's derivatives unit was established in January 1993 when the company set up a broad agreement with the bank for derivatives contracts. In November 1993, P&G agreed to buy a leveraged derivative product; P&G would make large profits if interest rates decreased and would lose money if interest rates increased. Leveraged derivatives products are a complex type of derivative, and their value can fluctuate to a greater degree than ordinary derivatives. The derivative worked fine at first, and P&G was sufficiently satisfied to agree to a second leveraged derivative contract in February 1994. However, interest rates began to rise that same month, significantly increasing P&G's payments to BT. It is unclear whether P&G knew the cost of getting out of the contract, and P&G has since acknowledged that its internal procedures were not followed when it agreed to this derivative. P&G claimed that Bankers fraudulently induced it to buy complex derivatives, mis-represented their value, and then induced P&G to buy more for alleged gains or to staunch losses. However, P&G appeared to be an active market player. It had $5 billion in long-term debt, and its treasury managed a large, sophisticated portfolio of derivatives. P&G has acknowledged that its internal procedures were not followed when it entered into the derivatives contracts in November 1993. Ed Artzt, P&G's CEO, said the executives who bought the derivatives ignored policies against such speculation and were \"like farm boys at a country carnival.\" His treasurer, Ray Mains, didn't read the contract he signed, didn't ask the right questions, and didn't assess risk by seeking outside help. Artzt also said Mains \"failed to tell his boss when he knew he had a problem, ... delayed while losses piled up, ... and misled his boss into believing the loss was much smaller than it was.\"10P&G's CFO, Erik Nelson, relied on Mains instead of getting outside advice and did not inform Artzt or the board of the problems with the deal. P&G's court filings include taped conversations that took place at Bankers Trust. In November 1993, Kevin Hudson, a managing director and salesman on the P&G deal, told his fiancee that the transaction would bring BT a profit of $7.6 million. She asked, \"Do they understand that? What they did?\" He replied, \"No. They understand what they did but they don't understand the leverage.\" She warned Hudson that the deal would blow up on him. He replied, \"I'll be looking for a new opportunity at the bank by then anyways.\" When the Fed raised interest rates in February 1994, P&G lost $157 million and when asked if \"they were dying\" Hudson replied, \"They don't know.\" He was even then trying to sell P&G a second leveraged derivative and said, \"Let me just get the deutsche mark trade done first; then they can ask.\" By April 12 that year, P&G announced a $157 million derivatives bath. Hudson's bonus for 1993 was $1.3 million. (He and his fiancee were married on November 5, 1994, live in London, and are still working for BT.11) P&G contended that, when it asked for an explanation of the costs, it learned that the bank was using a proprietary model to calculate the costs which it would not share with P&G.12 P&G alleged that, in April, BT gave the company charts which showed that it would have had to pay a penalty to get out of its November contract almost from the day it was initiated. APPENDIX: Companies That Procter & Gamble Says Lost Money on Derivatives Due to Bankers Trust's Allegedly Fraudulent Sales Practices COMPANY LOSS (MILLIONS $US) Procter & Gamble 195.5 Air Products 105.8 Sandoz 78.5 P.T. Adimitra Rayapratama 50.0 Federal Paper Board 47.0 Gibson Greetings 23.0 Equity Group Holdings 11.2 Sequa 7.5 Jefferson Smurfit over 2.4 Source: Business Week, October 16, 1995. Further evidence points to taped conversations between BT employees in which a BT salesman, discussing P&G's decision to enter into the November contract, says \"we set 'em up.\"13 P&G finally locked in interest rates on both the derivatives; however, it claimed that by the time it finished doing so, its financing costs were $195.5 million higher than they should have been (p. 110).14 P&G asserted that BT employees were trying to deceive it from the day the derivatives contract was initiated. As evidence, P&G points to a taped conversation between Bankers employees about the November contract where one asks: \"Do they [P&G] understand that? What they did?\"15 The other employee replies: \"No. They understand what they did but they don't understand the leverage, no.\"16 The first employee then says: \"But I mean ... how much do you tell them. What is your obligation to them?\"17 The second employee responds: \"To tell them if it goes wrong, what does it mean in a payout formula ...\"18 P&G sued BT in October 1994, alleging that the bank \"deliberately misled and deceived it, keeping the company in the dark about key aspects of the derivatives the bank was selling (p. 106).\" 19 BT countered that P&G was an active and sophisticated player in the financial markets and knew how its derivatives would perform. In court filings, BT described P&G as \"sophisticated, experienced, and knowledgeable about the use of interest-rate derivative contracts and the risks presented by those contracts (p. 109).\"20 It added: \"Although P&G would like this court to believe that it is a naive and unsophisticated user of derivatives transactions, the fact is that as part of its regular course of business and with authorization from top management, P&G's Treasury Department managed a large and sophisticated portfolio of derivative transactions (p. 109).\"21 BT asserted that P&G knew how the derivatives would perform and had included a taped conversation in its court filings in which a BT employee shows a P&G treasury employee how to calculate its rate on the November derivative.22 BT also produced evidence in court filings that P&G top executives blamed their own personnel for the investments. \"Rather than putting its own house in order, and accepting its losses, P&G chose instead to bring this lawsuit (p. 111).\"23 On September 1, 1995, P&G filed a motion in the U.S. District Court, which was approved, to add RICO (racketeer-influenced and corrupt organization) charges to the allegations against BT. A company found guilty of RICO charges is liable for three times the damages and plaintiff's legal costs. Banker's counter-filing called this \"blackmail,\" saying P&G was hoping to vilify BT by the sheer number of its charges. The lawsuit was settled out of court in May 1996. Questions 1. What do you think the basis of settlement should have been? 2. Did BT have a duty to disclose all the information it had regarding the transactions to P&G, including pricing, mark to market value, and risk, or should P&G, a multibillion-dollar company, have ensured that it knew and understood these figures and risks prior to engaging in the transactions? 3. Did BT have an ethical duty to ascertain the suitability of these products for P&G, or did its responsibilities end with providing its client with the product it demanded? 4. Was the maxim of \"buyer beware\" more appropriate than \"seller beware\"? 5. What other ethical issues are raised by the case? *