A CFA Analyst analyzes bio tech stocks. In his analysis he has concluded that Micro Pharm has not been adequately expensing uncollectibe AR. Analyst beleives that this build of AR will soon require a write-down. Micro-Pharm’s CEO recently disclosed to the analyst nonpublic details of a pending lawsuite that will negatively affect the company. The analyst has decided to issue a sell recommendation based on this expected write down and unfacorable litigation. The analyst does not disclose the litigation information in the updated investment opinion. Did the analyst violate the CFA Institute of Prof Conduct by issuing his sell recommendation? A Yes B No Can you provide explaination?
A Yes Because it clearly states that he based his sale recommendation not only on the expected write-down, but also on the material nonpublic information disclosed to him by the CEO. Had he issued the recommendation based solely on the receivables issue, he would not have been in violation.
you got it right…i was thinking more of the mosaic theory where he did his analysis plus got inside information which is valid. either way, in mosaic theory, can the analyst us inside information along with other public information?
“the analyst has decided to issue a sell based on this expected write down and unfavorable litigation” His decision was therefore dependent upon material non-public info, hence a violation. If it said he issued the sell based only on the write down, then I think it would have been fine.
mosaic theory = non-material non-public + all public info
i think you can use non-material non-public info for mosaic theory, but i believe material info can never be used… not positive.
material non-public can never ever be used
got it …Thanks. Here you go with an another question… Terry Welch, CFA is a portfolio for Barr Inv. Welch began using ORH Brokers as his sole broker 5 years ago. ORH’s competitive fees and superios trade execution has drawn the attention of Welch’s colleagues, many of whom now only us ORH to place trades. In appreciation of this, ORH recently offered Welsch tickets to a sold out performance of the local symphony. The tickets had a value of $90. Two days later, one of Welch’s clients presented him with a small clock worth $80. Welch accepted both gifts but decided not to disclose to his employer since they are below $100. Did Welsch violate the standards for… Symphony tickets Clock A No No B No Yes C Yes No D Yes Yes
D?
I would say D, that sounds like soft dollars right there
Answer is No for Symphony tickets and Yes for Clock…Does any one know why???
because the performance was sold out and the market value of the tickets was certainly more then face value… just think of a yankees vs red sox playoff game…
No for tickets since this is merely a toke of appreciation for continuing business AND ORH is not Welch’s client. Yes for the clock since this could hamper Welch’s independence and objectivity in dealing with other clients. The violation is not based on the acceptance of the gift but on failing to properly disclose this fact to the employer