From the cfa online self test. I chose A (wrong). Gaines, a financial analyst for Skinner Investment Counseling, is told by the investor relations representative for Firebird Avionics, a major aircraft parts manufacturer, that the firm is in the final stages of building a new fuel efficient jet engine. This information is divulged by Firebird at the most recent quarterly conference call for analysts. Gaines uses this information along with other information he obtained from the company and distributed to the public in a research report that includes a “buy” recommendation for Firebird stock. Which of the following statements is CORRECT: 1) Gaines violated the Code and Standards because he used material nonpublic information. 2) Gaines violated the Code and Standards because he has a material misrepresentation in his report. 3) Gaines violated the Code and Standards because he failed to separate opinion from fact. 4) Gaines’ actions did not violate the Code and Standards And one more. Which of the following is LEAST LIKELY to be an example of misrepresentation: 1) Claiming to have earned an academic degree or professional designation that has not yet been awarded. 2) Guaranteeing a specific rate of return on the equity securities of a public company. 3) Omitting relevant facts from a research report. 4) Plagiarizing the work of another analyst in writing a research report.
Even if divulged at an analysts conference, a piece of information is nonpublic until made public in a report made by the company (not by analysts), so whatever the analyst heard at the conference is nonpublic. Whenever a information is strong enough to influence the price of the stock in the market, or an investor’s decision to invest or not in a specific stock, that information is material. Seems the news on the fuel efficient engine is both nonpublic and material, so this one should be A.
For the second question, I say 3.
I choose 1 and 2 respectively, both wrong.
Just run a search on the forum, the first question has been discussed plenty of times, looks like it is D, no violation. Going back to the CFAi text, Volume 1, page 37, states that material information could be “innovative products, processes or discoveries”. Then, on page 38, it says "Analysts must be aware that a disclosure made to a room full of analysts does not necessarily make the disclosed information “public”. I don’t see how a quarterly conference call to analysts would be a “public” disclosure to investors. But that’s my opinion.
So it would be safe to say that: - material information given out in an analyst conference call is not MNP - material information given out on an analyst tour is MNP thoughts?
I think is MNP until disclosed by the company in a public report to investors. Check on page 38, volume 1, CFAi text.
Then what would be the rationale for no violation, if that’s true?
Also obtained from CFAI Volume1 pg 38: (Read along with what map1 said) Members and candidates must have a reasonable expectation that people have received the information before it can be considered public. Once the information is disseminated to the market, it is public information. --------------------------------------------------------------------------------------------------- I’m confused… I think it comes down to your own judgement as to whether or not it is MNP
Rationale for no violation is that the information (about the new fuel efficient jet engine) is not “non public”. So, is it okay to use the information in a report if it is material but NOT non public?
As map1 quoted, however, it says directly in the book that a statement made to a room full of analysts does not make that information public. I went with no violation initially as well just from what I think, but it seems pretty explicit there, no?
Could it be that the information is not material as “final stages of building a new fuel efficient jet engine” is no certainty to finality of the project?
map1, I don’t think there is any doubt that it’s material. Just my opinion. The only place I can see the hang up is public vs. non-public.
Maybe it’s just not NEW information. The fact that the thing is in its final stages must make the information lose some of its “materiality” …
If any MNP information is not to be used by analysts in their reports, why would it be disclosed to them exclusively by companies? The key is that “Gaines uses this information along with other information he obtained from the company” … “along with other information” Which means that the analyst did not use the information directly. Hence it is not a violation. Just a thought.
For a lot of companies (I don’t want to say most here, because I’m sure you could find a few who don’t), the analyst conference call is a public event. You can log on to yahoo and listen to most of them. EX - http://finance.aol.com/event/general-electric-company/ge/nys/conference-calls Therefore, the info is public, and 4 is right for the first one…or is it D? haha For the second one, 3 is the only one that makes sense.
I am with most of you. D… not violate standards… Mosaic theory which supports analysts using such attractive, public info, info recieved through “oral presentations, conference calls, press releases and analyst’s visits” to benefit their clients/ investors Also this “along with other info” which, as alluded to by smartrisk, should make the conclusion so not arrived at “just by using the info”. Finally, the analysts needs to document this evidence as per Standard V as part of the research release. Guess no one disputes second, C or 3.
Isura, what are the answers?
TheAliMan Wrote: ------------------------------------------------------- > Isura, what are the answers? First one was 4. Second was 3.
map1 Wrote: ------------------------------------------------------- > Just run a search on the forum, the first question > has been discussed plenty of times, looks like it > is D, no violation. > > Going back to the CFAi text, Volume 1, page 37, > states that material information could be > “innovative products, processes or discoveries”. > Then, on page 38, it says "Analysts must be aware > that a disclosure made to a room full of analysts > does not necessarily make the disclosed > information “public”. I don’t see how a quarterly > conference call to analysts would be a “public” > disclosure to investors. But that’s my opinion. I agree with you. But what do I know. I hope Joey chimes in on this.