A Chinese Wall

For example, the income statement reveals that in 1986 approximately 6 percent of the investment banking firm's revenues were earned in its investing banking division, and that about 72 percent of revenues were earned in following and dividends. Neither fact provides both insight about what Hegarty should do to address the allegation made by the CEO of Knox Corporation. Similarly, the fact that Mebel Doran earned significant later tax profits for the final stage five years, including an after tax profit of $151.8 million in 1986, does not indicate how Hegarty can keep Knox Co

On the separate hand, if Mebel Doran's arbitrageur had indicated in the converse that the reason for his interest in Power-Tie was that he had received an query about that company from his employer's M&A department, there is undersize doubt that the other arbitrageur would have been able to get word betwixt the lines and know that Power-Tie was the target of a take-over. However, if the conversation between the two arbitrageurs was more oblique, then Mebel Doran has plausible deniability in the stitch of the stock price of Power-Tie.

The same concern can be raised about the financial information provided by Knox Corporation. well-read that Knox had earnings from continuing operations of $54.

4 million in 1986 and an after tax loss of $25.8 million does not offer any insights about whether anyone at Mebel, Doran and Company broke the law or violated the company's privileged code of conduct or its musket ball code of business ethics -- assuming such a code exists. Nor does it indicate where the leak of confidential information originated.

rporation as a client, avoid a scandal, and address any internal deficiencies in his company.

The key question is whether Mebel Doran's risk arbitrageur did anything unethical or unlawful during his or her discussion with the arbitrageur with the other firm. Hegarty knows that there are frequent contacts between such individuals. He also knows that it is the nature of the arbitrage business that professiona
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