Question of the Week – Ethics

Question

Simon Leone, CFA, financial analyst at Trinity Investments, provides financial planning and investment advice to large auto companies. Moto Company, the second largest car manufacturer, is planning to renew its IT infrastructure and has sought advice from Simon to finance the project. To better understand the cashflow requirements, Trinity sends Simon the proposal from Diwan Technologies, the company internally selected by Trinity for the project, though the project is yet to be formally awarded. Simon tells her friend, Jack, who handles the IT Sector portfolio about the major contract that Diwan Technologies has secured. Acting on the information, Jack increases his holding of the Diwan Technologies stock. Which of the following statements is/are most likely correct?

 	By divulging information about the project to her friend, Simon violates
Standard III (E), preservation of confidentiality
 	By acting on information provided by Simon, Jack violates Standard II (A),
material non-public information.
 	Both of the above

azaratan · Answer

Does the standards apply to Jack? I figured he wasn't a CFA charterholder or candidate, hence my answer was "A".

exam_whiz · Answer

Correct Answer: CTrinity gave the proposal from Diwan to Simon to gain better insights. The information is clearly confidential. By divulging information about the project to her friend, Simon violates Standard III (E), preservation of confidentiality. Jack has sufficient information to determine that the project information is both material and non-public. By acting on inside information, Jack violates Standard II (A) relating to material non-public information.