GIPS - internal dispersion concerns

Delray recently acquired BJ Asset Management (BJAM), and Delray took ownership of all BJAM records and has negotiated for the investment staff to remain unchanged.
There will be no break in the performance record between Delray and BJAM. BJAM was GIPS compliant although unverified and all of its composites are materially different from those of Delray. BJAM’s past results have been reasonably stable with very few extreme results. The only disappointment is that Ben Jones, the founder of BJAM, will soon retire. However, Jones’s involvement in the investment management side of BJAM ceased about five years ago. The rest of BJAM’s investment staff will continue to manage the old BJAM composites.
Upon reviewing a staff memo of BJAM’s GIPS compliance procedures, Richardson has the following two concerns:
Concern 1: BJAM reports internal account dispersion as a simple difference between the top 25th and bottom 25th percentile account performance within a composite. It also reports standard deviation for each annual period for the composite and benchmark using only the previous three years of data.
Concern 2: BJAM reports internal account dispersion as a simple difference between top 25th and bottom 75th account performance within a composite, but reports standard deviation for only three years of each composite’s and benchmark’s monthly returns.

Identify whether or not Concern 2 correctly describes a conflict with GIPS.

So, apparently, there IS a conflict: The memo states that the BJAM’s past performance results must be included in Delray’s GIPS performance presentation.
In looking at portability, if after a takeover, (i) substantially all the investment decision makers are retained by the new firm, (ii) the decision-making process remains substantially intact and independent within the new firm, (iii) the new firm has records that document the previous firm’s historical performance, and (iv) there is no break in the performance record between the new and previous firms, then the target firm’s performance record may be included in the acquirer firm’s performance presentation immediately after the acquisition process is complete.
For example, BJAM’s staff personnel have largely remained unchanged, and they will be working on the same composites previously held by BJAM prior to the takeover. Also, Delay took ownership of all of BJAM’s past records.
However, since the key word here is “may” (and not “must”), then Concern 2 correctly describes a conflict with GIPS since Concern 2 treats the linking of results as a requirement when it is only optional.

Can someone please explain why concern 1 is not in conflict with GIPS, but concern 2 is? To me, they seem more or less the same and definitely did not understand their explanation… thank you!

A lot of info here that’s not related to the question so I was a bit confused as to what your question was - but assuming it’s just the difference between those two concerns, my take is this:

There is a fair bit of flexibility in measuring internal dispersion but the underlying ethos is that internal dispersion should be “representative of the distribution of returns”. In this case, they are trying to use a method that’s similar to the high/low method but if you use the top 25 portfolios to compare compare to the bottom 75 portfolios that’s not going to give you a good idea of dispersion because it could be that portfolio 15-25 isn’t too different from portfolios 26-50 which would understate the actual dispersion

They actually claim that the problem, is with making it a must, when it is only optional to link the performance of an acquired firm, if those 4 conditions mentioned are satisfied… really? Idk, what a badly worded question, in my opinion…