This is why the ethics portion frustrates me!!! Mr. Lambert is a research analyst for an investment firm. Last year, he put a “Buy” recommendation on XYZ, a manufacturing company. His recommendation was in part due to an analyst conference call with XYZ’s CEO, who predicted a substantial increase in sales for the upcoming year. Lambert also conducted research on XYZ, its industry environment, and general market expectations. XYZ, in fact, underperformed in the year following Lambert’s recommendation due to sagging sales and increases in supply costs. Lambert’s boss asked Lambert to meet with him to discuss this particular recommendation. For the meeting, Lambert gathered his files on XYZ, including his notes detailing his conference call with XYZ’s CEO. According to the CFA Institute Code and Standards, Lambert is: A: in violation of III(A) Loyalty, Prudence, and Care B: in violation of II(A) Material Nonpublic Information for utilizing material nonpublic information C: not in violation of any Standard because he retained records to substantiate his initial investment recommendation D: in violation of V(A) Diligence and Reasonable Basis I had to choose between B and C. I chose B and it was incorrect. C is correct!!! Here’s the explanation: Standard V© Record Retention and Standard V(A) Diligence and Reasonable Basis. Although Lambert’s recommendation turned out to be wrong, he did have a reasonable basis, and he retained the records required to support his conclusion. There is no evidence here that either II(A) or III(A) has been violated. Is there no violation because he made his “Buy” recommendaton BEFORE the analyst conference call!!! Because, the SoPH says: “…analysts must be aware tat a disclosure to a room full of analysts does not necessarily make the disclosed information “public”…analysts should also be alert to the possibility that they are selectively receiving material nonpublic infomation…”
this is unambiguously and unanimously C. There is no conflict. Lambert is a nice guy.
Lambart is one of those analyst’s who happens to be wrong on their calls. That’s okay. He is in compliance with SOPH.
What if he issued his “BUY” rating, AFTER the conference call–then what???
soxboys21 Wrote: ------------------------------------------------------- > What if he issued his “BUY” rating, AFTER the > conference call–then what??? The question doesn’t mention that. The question states he recommended Buy, and asks you if he violated the given 3 standards in the answer choices. He didn’t. BTW Analyst conference calls means a lot of analysts were there, and it is their job to make a recommendation after the call, so what is wrong if he made that call. Mr. Lambart may be privvy to material non-public information but so is all the other analysts, and this is hardly material that CEO is predicting substantial increase in sales. It is CEO’s job to provide guidance if he wants to.
I agree with you pepp, conference call, public info.
amberpower Wrote: ------------------------------------------------------- > I agree with you pepp, conference call, public > info. That’s not what it says on Page 38 of SoPH: “…analysts must be aware tat a disclosure to a room full of analysts does not necessarily make the disclosed information “public”…analysts should also be alert to the possibility that they are selectively receiving material nonpublic infomation…”
soxboys21 Wrote: ------------------------------------------------------- > amberpower Wrote: > -------------------------------------------------- > ----- > > I agree with you pepp, conference call, public > > info. > > That’s not what it says on Page 38 of SoPH: > “…analysts must be aware tat a disclosure to a > room full of analysts does not necessarily make > the disclosed information “public”…analysts > should also be alert to the possibility that they > are selectively receiving material nonpublic > infomation…” Yes you have to be aware of it to not go and trade on it, or tell someone else to trade on it, or talk to your daddy so he can tell everyone. However, it doesnt’ mean that you can’t use that information under mosaic theory to come up with a recommendation. Since a recommendation is a public means of giving out the information (atleast for lambart) hes not in violation.
Thanks!