Front-running a client order is an example of a short-term gain and long-term loss.
If the trader(s) involved pull it off, there are near-term profits for the individual and the trading group. But when the repurcussions come later, the costs to the company are far greater than the profits reaped.
The regulatory bodies often see to that by levying "disgorgement plus" fines, which add substantially to the overall cost of the incident.
A trader at HSBC was recently brought to trial on fraud charges that prosecutors say date back to a December 2011 event that involved the use of code words in phone calls and chat messages -- such as "my watch is off" -- to trigger buying and selling actions by currency traders at the bank. The alleged front-running is believed to have centered on a $3.5 billion client order for British Pounds, allowing traders to profit and involving participants in Hong Kong, Europe and New York.
Clever, and caught.
The difficulty of a case like this, though, is that there are humans deploying creativity to outsmart a system for personal gain. For better or for worse, the world knows no bounds on this sort of activity.
That said, there are tools now that stand a decent chance at surfacing risks like this either after the fact or before they even happen, which means there are ways of mitigating some of this risk. More importantly though, as was demonstrated in the Bank of Tokyo case, having controls in place demonstrates that the firm is doing what it can to stay in front of incidents like this, and can often buy leniency, in the form of a reduced fine.