Gaines, a financial analyst for for an investment company, is told by the investor relations representative for Firebird, a major aircraft parts manufacturer, that the firm is in the final stages of building a new fuel efficient jet engine. This info is divulged by Firebird at the most recent quarterly conference call for analysts. Gaines uses this info along with other info 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 is correct? A. Violation of the Code and Standards because he used material nonpublic info B. Gaines’s actions did not violate the Code and Standards C.Violation of the Code and Standards because he failed to separate opinion from fact D. Violation of the Code and Standards because he has a material misrepresentation in his report.
I would go with A. The info just given to analyst doesn’t make it public and he used it to come up with the buy recomm.
The CFAI self test shows my answer A is wrong. I wonder if the answer should be C
I shud go with B. (mosaic theory) becoz the source of information is not material.
I go with B unless it says that he issued a BUY rating only based on what the compnay said without additional work on his/her own - In which case he would not have a reasonable basis.
I’m reading this as saying that he was told this information by the the IR rep but that same info was subsequently divulged to other analysts on a call, before he issued the report. Doesn’t that make the info public (and therefore no violation)?
…which is the self test please …i go with A too
riot no …the information divulged by the IR rep to the analysts does not make it public - this is very clearly stated in the cfa text - conference/analyst calls are not considered public. i would go with B tooo
mumukada Wrote: ------------------------------------------------------- > riot > > no …the information divulged by the IR rep to > the analysts does not make it public - this is > very clearly stated in the cfa text - > conference/analyst calls are not considered > public. > > i would go with B tooo so why do you go with B if you agree that the info is non-public???
He got the information from IR, not from the analyst conference call. If IR is telling people over the phone, than the info has likely already been disseminated…plus I would expect material revealed in an analyst call would be disseminated in a reasonably short period after conclusion of the call.
B - For sure. Reason? IR => information is public.
I’m saying B
Oops, gave my reasoning, but forgot to give my answer…B goes with my explanation.
i didn’t think the code specifically indicates that conf calls were non-public…i thought it suggested that information to be released in calls should concurently be press released. in the example above its not clear. so if you took a literal view…it probably is A since it specifcally does not mention concurent press release and it does not indicate that the analyst found corroborating info (ie mosaic theory). BUT - jerrycolumbus has indicated that A is wrong. So i still stand by B.
Prior examples have indicated that giving out information to a group of analysts doesn’t constitute public disclosure. The only thing I can think of here is that the person giving up the info is the IR and you have to assume it is public then…if the CEO gave the information than you couldn’t trade on it.
IR people are like mushrooms, feed 'em sh!t and keep 'em in the dark. If they know, everyone knows.
oh yes I missed the IR part…damn details…LOL
jerry are you gonna tell us or what??
what is the answer?