Material Information

Fred Dean, CFA, has just taken a job as trader for LPC, a large insurance company. One of his first duties in his new position is to execute the purchase ofa block of East Street Industries, a firm that is a major client of his previous employer. During his prior employment, Dean was informed directly by East Street’s CEO that the company’s sales have experienced a sudden drop and are20% below current analyst estimates. This information has not yet been announced. In reviewing the research report supporting the purchase decision, Dean realizes that the buy decision is based on sales forecasts that he knows are wrong. Which of the following actions would be the most appropriate for Dean to take according to CFA Institute Standards of Professional Conduct? A. Anonymously post the information about the drop in sales on an Internet bulletin board to achieve public dissemination of the inforination and inform his supervisor of the posting. B. Contact the CEO and urge him to make the information public and make the trade if he refuses. C. Share the information only with his immediate supervisor and the firm’s compliance officer. D. Request that the firm place East Street’s stock on a restricted list and refuse to make any buy or sell trades of the company’s stock. I chose D, answer is B. Also, what do we do if CEO refuses to make the information public?

As it says: make the trade.

Wow that is a sneaky question. But I guess by not making the trade he would be acting on MNP information

B is the answer from the book. Urge the CEO to disseminate material info. However, if he doesn’t, you can’t use the material info -> make the trade.

That makes sense.