Surely the answer should be #2, to disassociate with the firm that’s providing you with material nonpublic information about its investment banking clients?
According to the CFA Institute Standards, which of the following actions is the most appropriate for Danko to take with respect to the use of the earnings projections? Danko should:
- disclose the information to the public.
- terminate PIA’s relationship with FTI.
- keep the information confidential and not use it in his analysis.
C is correct. The information that Danko received is material nonpublic information. Disclosing the information to the public is not his role. Further, earning gains for his clients does not excuse the violation and is not a justifiable reason for taking action on the material nonpublic information. The only entities that should release the information are the corporations or another entity with their permission, perhaps FTI.