Ethic question

Ted Caron, CFA, is a research analyst for Greenfield Investment Partners, with primary responsibility for covering beverage-related stocks. One of the companies that Ted analyzes is Famous Bottling, Inc. Although he has never met with the Company’s senior management, Ted uses available material public industry information and nonmaterial, nonpublic information to determine that Famous Bottling must divest its non-core businesses to remain competitive. Ted issues a research report to his clients recommending a “sell” opinion based on his conclusion above. Two days after the research report has been issued, Famous Bottling management announces its decision to divest certain non-core businesses, which leads to an immediate 20% drop in stock price. Ted: a) Violated the Code and Standards by using nonmaterial, nonpublic information to support his conclusion. b) Complied with the Code and Standards, since as a perceptive analyst he pieced together information and drew his own independent conclusion (Mosaic Theory). c) Should have discussed his investment conclusion with Famous Bottling senior management before issuing his research report. d) Provided a speculative investment opinion that may have been misleading to existing research clients. The book says the answer is B. When is using nonpublic information acceptable?

when it’s nonmaterial and nonpublic, it’s fine. mosaic theory.

nonmaterial-nonpublic information is ALLOWED

if its non-material in nature then its fine… even when if it BECOMES material when combined with your own analysis, its fine…(mosaic theory)


so Bluey, [material-nonpublic information + more-top-up-analysis] is fine too ?? I just forgot about this one completely…

no. material nonpublic information is never ok.

yeh what acwu said^… material non-public is NEVER ok… but if the info in non-material (but is made material through your own “top-up” analysis) then its ok…