Ethics Q

Betsy Fox is an investment advisor who has a client, Don Gordon, who is an employment lawyer. At lunch, Fox noticed Gordon and the Chief Financial Officer of Blue Star Company at the next table. She overhears them talking and ascertains that Blue Star is about to announce higher than expected earnings. Before the earnings release, Gordon contacts Fox and asks her to purchase 3,000 shares for his portfolio. Fox: A) must refuse to purchase shares for Gordon. B) can only purchase shares for her personal account after informing all of her clients about the potential of the increase in earnings. C) can purchase shares for Gordon, but cannot ever purchase shares for her personal account. D) must wait until after she purchases the 3,000 shares for Gordon to purchase shares for her personal account, and then must keep the information quiet. Your answer: A was correct! According to Standard II(A), Material Nonpublic Information, Fox cannot act or cause others to act on material nonpublic information until the information is made public. The information overheard at lunch was material and nonpublic; therefore, Fox must wait until the information is made public before accepting Gordon’s order. --> my question: by refusing to purchase the shares isn’t Fox acting (or not acting in this case) on MNP information? Surely he should rather refuse to purchase the shares on the grounds of not being party to an illegal act? Not MNP?

purchasing the shares for the client would be a pretty clear breach of MNP info, as she is causing others to act on the info. remember, with these ethics questions there might be another answer (not stated) that is more relevant to the question - you can only use the answers in front of you though.

this is one of the questions i wouldn’t have read past the first answer for. then i dont confuse myself. A is absolutely correct so read no further. ** i know this is not a great approach and would probably read further just to check in the exam