Please explain: 1) Dick Charles is a security analyst with a large brokerage company. Sean Donaldson is a money manager. They both listen in on a conference call for security analysts with the president of Stoppard, Inc., who states that in two days the company will be holding a press conference announcing a new product. Both Charles and Donaldson feel the news will increase the value of Stoppard. A) Charles must wait until after the press conference to disseminate the information to clients, and Donaldson must wait until after the press conference to purchase the stock for his clients. B) Charles must wait until after the press conference to disseminate the information to clients, but Donaldson can purchase the stock for his clients immediately. C) Donaldson must wait until after the press conference to purchase the stock for his clients, but Charles can disseminate the information to clients immediately. D) Charles can disseminate the information to clients, and Donaldson can purchase the stock for his clients immediately. 2) Paul Drake is employed by a company to provide investment advice to participants in the firm’s 401(k) plan. Company stock is one of the investment options in the plan. Drake feels that the stock is too risky for employees to own in their 401(k) plan and starts advising them to pull out of the stock. The Treasurer of the company calls Drake and tells him that he will be fired if he continues making such advice because he is violating his fiduciary duty to the company. Drake should: A) continue to advise employees to sell their stock. B) cease making sell recommendations because of the harm that can come to himself. C) make sell recommendations but point out that the company Treasurer has a differing and valid point of view. D) tell employees that he cannot provide advice on company stock because of a conflict of interest.
1 A: Both have to wait until public dissemination by the company of the material private info (new product). 2 A: Drake’s loyalty and fiduciary duty is towards the employees contributing to the 401(k) plan, not to the company.
A & A Second question: the analyst must give priority to the client over his employer on all circumstances.
- D 2) A
What’s wrong with number 2 being C?
He doesn’t have a valid point of view… the fiduciary duty is to the beneficiaries, not to the company.
A & D…
A & A
A&A 1. - it is a conference call for analyst only, thus any announcements made are nonpublic. Since it pertains to a launch of a new product, the possible effect is deemed material. 2. -Fiduciary duty is owed to the beneficiaries and plan participants, not the employer.
There is no material nonpublic info involved. If it’s not (1) D and (2) A, I’m gonna hate ethics even more!
The answers are A and A.
- A conference call with analysts is wide open, and expecting this to be confidential is ridiculous. This was most likely conducted by phone or over the Internet. 2. Why would one assume the CEO is parting material nonpublic info in this conference? Conference calls and press conferences are not venues for material nonpublic info. 3. Saying they will announce a new product without any details can hardly be called material information. Normally, paople within the firm already know about the product, engineering staff, sales, etc. The material nonpublic info is in the details of the product, not the mere mention of announcing the intention of announcing a new product. No need to discuss. Sure, for exam, we should do what the Romans do. I just disagree with some of CFAI calls on ethics, and I’m entitled to my opinion.
1.Wide and open, indeed, but maybe not all investors standby to hear what you have to say, or have the internet connection to hear it broadcasting. 2.Let info slip, get the investment analysts ready. 3.Material enough to influence investment decision.
1 - A: The CFA material is very explicit regarding the first scenario. Analyst calls DO NOT QUALIFY as public dissemination. 2 - A: Fiduciary duty to the end beneficiary is the only thing that matters!
- Why not D? Its a conference call, the material is public. You can usually listen to these things on the Internet. 2) A - Screw the company, his fiduciary duty to the employees
Again, an analyst conference call is explicitly detailed in the CFA material as NOT A PUBLIC EVENT.
Why not ‘D’ for 2nd. its clear conflict of interest. Can somebody post official answer…
There is no conflict of interest in the second question. The only interest that the portfolio manager is required to acknowledge is THE BENEFIT OF THE BENEFICIARY WHICH ARE THE 401K PLAN HOLDERS.
mcf: > 1 - A: The CFA material is very explicit regarding the first scenario. Analyst calls DO NOT QUALIFY as public dissemination. So, you can’t use analyst conference calls to disseminate *material* non-public information, right? In that case, why should you consider anything that gets said in there as material non-public information? Think about that, and you realize that answer A for the 1st question can’t be correct. I still maintain that D is the answer, using CFAI’s own rules.