Can anyone tell what’s wrong with B. Andrew Mader, CFA, is an analyst with Metro Investment Services. During lunch with some of Metro’s managers, Mader is told, "There are going to be major problems at Gebco (a firm that Metro had brought public last year). I was just over there and the place is just crawling with government inspectors.” Mader had just issued a report with a “buy” recommendation on Gebco last week. Mader should: A) without further research, immediately issue a new report reversing his previous recommendation. B) immediately issue a new report, but only after stopping by Gebco himself to corroborate the story. C) not do anything to avoid a violation of fair dealing. D) not do anything because to do so would violate his obligation to preserve confidentiality. Your answer: B was incorrect. The correct answer was D) not do anything because to do so would violate his obligation to preserve confidentiality.
At first, even I thought of it to be a ‘B’ but then further analyzing it seems that Madar had been to lunch with his own organization (Metro) managers from the i-banking department (i-banking … because they had done the underwriting of Gebco last year) and there is (material) information flow from the i-banking dept to the Research dept (since there were no “firewalls” at place … obviously), so he should not act on the information to preserve confidentially. Such transfer at office, can be avoided by implementing firewalls and/or a central clearing dept to keep a check on the inter-department-information transfers. Lemme know what other’s think? -Dinesh S
Questions like this piss me off. If I came across such a question in the exam, I would typically not even think twice about picking an option other than “B.” Back to reviewing Ethics… 