CFA CFA Level 1 Question of the Week – Ethics

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Question of the Week – Ethics

  • This topic has 7 replies, 7 voices, and was last updated 2w by Zee Tan.
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      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
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      Does the standards apply to Jack? I figured he wasn’t a CFA charterholder or candidate, hence my answer was “A”. 

      klkirchner voted up
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      Correct Answer: C

      Trinity 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.

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      I answered A, because the question makes no mention of Jack being a CFA charter holder or candidate? 
      Other questions (and their answers) are very clear about this. 

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        Material non public info is NOT just for charter holders, it is for EVERYONE!

        Zee Tan voted up
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          I think my confusion around this is that Jack isn’t mentioned as a candidate or charter holder. I can’t imagine Jack can violate a standard he isn’t held to.

          Simon violated Standard II (A) relating to material non-public information by causing Jack to act on material non-public information may be a more accurate way to word the second answer statement.

          Please correct me if I’m wrong.

          • Zee Tan
            Keymaster
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            My take on this is “did Jack’s actions violate Standard II (A), material non-public information?”

            Whether or not Jack is actually bound to the code by professional membership, in my opinion, is moot.

            klkirchner voted up
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      Woo! I got it right.

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