Mosaic Theory

I know same questions have been asked and answered several times but I still don’t feel comfortable to make the judgement whether it should be applied to Mosia Theory or not. I am putting this together and hoping I will be able to have a better understanding on public/nonpublic/material/non-material information and why they have made the case apply(not apply) to Mosiac Theroy. Any comment is appreciated. 1 . Waters is an investment analyst who has accumulated and analyzed several pieces of nonpublic information through her contacts with drug firms. Although none of the information is “material,” Waters correctly concludes that the earnings of one of the drug firms will be unexpectedly high in the coming year. Waters: (A) Should urge the drug firm to make public dissemination of the information immediately. (B) Can use the information to make investment recommendations and decisions. © May use the information, but only after approval from a compliance officer or supervisory analyst. (D) Cannot legally invest or make investment recommendations based on this information. *********************************** 2. Gaines, a financial analyst for Skinner Investment Counseling, is told by the investor relations representative for Firebird Avionics, a major aircraft parts manufacturer, that the firm is in the final stages of building a new fuel efficient jet engine. This information is divulged by Firebird at the most recent quarterly conference call for analysts. Gaines uses this information along with other information he obtained from the company and distributed to the public in a research report that includes a “buy” recommendation for Firebird stock. Which of the following statements is CORRECT: (A) Gaines’ actions did not violate the Code and Standards. (B) Gaines violated the Code and Standards because he used material nonpublic information. © Gaines violated the Code and Standards because he failed to separate opinion from fact. (D) Gaines violated the Code and Standards because he has a material misrepresentation in his report. *********************************** 3. Sallie Lewis, CFA, is a research analyst covering the minng industry. Along with other analysts, Lewis visits the primary mine of Gold Rush Mines(GR). During the visit, a major piece of equipment falls and lewis overhears an unidentified employee state that production will be stalled for six months. Lewis immeidately files a sell recommendation on GR without any additional research. Has Lewis violated any CFAI Standards? No. *********************************** By newsuper material + non-public = violation material + public = no violation non-material + public = no violation non-material + non-public = no violation *********************************** By map1 Whenever a information is strong enough to influence the price of the stock in the market, or an investor’s decision to invest or not in a specific stock, that information is material. Seems the news on the fuel efficient engine is both nonpublic and material ***********************************

  1. B 2) A you got the answers?

Thanks Reggie. 3) is a example of non-material + non-public = no violation

the Gaines question has been brought up a lot of times on the forum, the majority concluded that it was B b/c analyst calls are generally considered non-public until the information reaches investors and the the fuel efficient engine is assumed to have a material impact on the stock price. but the majority of people also conclude it’s pretty convoluted =]

Waters is an investment analyst who has accumulated and analyzed several pieces of nonpublic information through her contacts with drug firms.  Although none of the information is “material,” Waters correctly concludes that the earnings of one of the drug firms will be unexpectedly high in the coming year.  Waters: a) Should urge the drug firm to make public dissemination of the information immediately. b) Cannot legally invest or make investment recommendations based on this information. c) Can use the information to make investment recommendations and decisions. d) May use the information, but only after approval from a compliance officer or supervisory analyst. c) another example of non-material + non-public = no violation

njblain Thank you, but 3) the answer says she didn’t violate, and you are saying breach of V(A) (Diligence & Reasonable Basis)?

In regards to (3): “Lewis immeidately files a sell recommendation on GR WITHOUT any additional research.” That statement alone leads me to believe she violated Diligence and Reasonable Basis. She heard a piece of information from a random person within the company and then immediately acted on it without further information. I find it hard to believe this is acceptable.

in regards to 3, i think we agree that she violated diligence and reasonable basis. the question is, did she violate the nonpublic information standard. if the question only said "did she violate standards by acting on material nonpublic information, what would u put