Former Fed Chairman Greenspan noted last year that in a market system based upon the intangible asset of trust, reputation has significant value. Madoff aside, trust is having a hard time on Wall Street. We share two recent stories of reputation malignment (vilification?) in the Financial services sector.
 
The first, reported by the Financial Times last Thursday, is that one in five hedge fund managers misrepresents their fund or its performance to investors during formal due diligence investigations, according to research from New York University's Stern School of Business. Researchers found that the most common misrepresentations by hedge fund managers was the amount of money they had entrusted to their funds; Performance and regulatory and legal histories are also often misrepresented.
 
The second, which broke widely on Friday, involves allegations of trading on insider information at the hedge fund, Galleon Group. According to prosecutors, co-conspirators of fund founder Raj Rajaratnam include a McKinsey & Co. consultant, an IBM (NYSE:IBM) senior vice president, an Intel Corp. (NASDAQ:INTC) treasury manager and two executives from the New Castle hedge fund group of the defunct Bear Stearns.

The reputation angle obviously interests the Society. But there is more. What really interests us is how McKinsey, IBM, and Intel will manage the headline risk. Will their intangible asset risk management systems allow them to characterize the malfeasance as the product of rogue actors? Or will they be held culpable for the non-compliance of their employees?

Stay tuned.