The following story is 100% imaginary. It didn't happen and in no way reflects actual characters or events. Now...Imagine that you are the investment banker in this story. What would you do?

There are three characters in this story: 

One: The Entrepreneur. He runs a company that is desperate for cash. If he can raise $3 million, he can win a $110 million contract worth $35 million in gross profit to him and investors. But he is out of cash and needs to raise money in less than 30 days to win this deal. He is ethical, knows his business well, but is an operations guy. He has little or no experience in the world of finance or Wall Street. Plus, he has payroll to meet and is loyal to his employees and is willing to take big risks to protect them and his company.

Two: The Promoter. He has a publicly traded bulletin board shell and a retail network that can raise cash. What he needs is an “asset” to roll into the shell. Then he can spin a good story to investors to raise cash quickly and make a profit himself on the rise in share price. 

Three: The Investment Banker. He is a seasoned long-time Wall Street player and hedge fund manager. He has retired from formal work but continues to love to get into business opportunities. Over the past decade, he has helped a number of early stage companies get noticed by Wall Street. The Promoter would like him to get involved in this current deal, bringing it to his network for funding, advice on structuring the deal, and for the credibility his name brings. 

Now, here are the (made up) facts that make this story interesting: The Promoter’s shell currently has in it a company that supposedly owns the rights to a breakthrough drug for cancer treatment. The Promoter put all of his money into this company and persuaded his friends and family to do the same. Unfortunately, after promising initial experiments, a recent trial proved the drug to be worthless (and thus the company itself). The stock of this company is basically worthless other than the value of having an empty shell. 

The Promoter has not yet released this information to his shareholders or to the public, despite the fact that it is material information and SEC law requires it to be disclosed. His strategy – unethical and illegal though it may be – is to roll the promising new company into the shell, raise cash with the new company’s story, and then announce the bad news about the old company (when it no longer matters). This is patently illegal and unethical because he is not disclosing the truth about the failure of the previous company, and is hoping that the new company’s momentum will pump up the stock price. 

However, the Promoter is not exactly known for his intelligence or his ethics, and he is desperate. He’s invested so much of his and his family’s time in this venture that he is now acting like an animal trapped in a corner, about to be attacked. 

There is no ethical dilemma so far. The Promoter is a scumbag. However....

The Promoter has offered to The Investment Banker an easy $1 million worth of stock (once the new deal is announced). If he accepts, the Investment banker can trade this stock, stay under the radar, and never get noticed by the SEC. In exchange, all he has to do is wait for the news releases about the new company, and then bring the deal to his contacts when the dust has settled and the new company is performing. So, for a week or so worth of work, he can make an easy, risk-free $1 million – or more depending on how well the stock performs. 

The Dilemma: Would you take the $1 million if you were in the Investment Banker's shoes? What if this deal just came to you and you could really use the $1 million? What about $10 million? $50 million? You will never get caught. Only the Promoter and (probably) The Entrepreneur will get in trouble with the law if they get caught. 

Had this been an actual story, I would have to say that I am fortunate to have The Investment Banker as one of the colleagues in my network. In this fictional scenario, he not only turned the deal down cold and cut the Promoter out from any further contact with him, he also kept me from getting involved with this thing. 

Is your network filled with people you can trust 100%, and have you earned their trust in return?

Addendum: Here are other questions for you: As the Investment Banker, would you tell the SEC about The Promoter? Would you feel an obligation to warn The Entrepreneur, who isn't savvy about SEC law, about The Promoter and his tactics? What about me? Do I as someone a couple of steps removed from the deal have an obligation to report these dealings? At my level, it is all just heresay, but is that an excuse or do I need to blow the whistle?