Gaines, a financial analyst for skinner investmnet counseling, is told by the invettor relations representative for firebird avionics, a major aircraft manufacturer, that the firm i in the final stages of building a new fuel efficient jet engine. this information is divulged by firebird by the most recent quarterly conference call for analysts. In a reserach report, Gaines uses this information along with ot her information he obtained from the company distributed to the public in a research report that includes a buy recommendation for firebiard stock. which of the following statements it true: A Gains violated …becaue he used material inside information D he did not violate… Is this considered material information? how can you decide if something is material? this one seems to me quite directly link to the profit of the firm.
D…I guess this is an example of Mosaic Theory…Not sure though
Id say D as well
the quetion is how decide if the information is material or not
A, this question was done few days ago. The explanation is that an analyst conference call in not public information.
the answer is D though. from 98 CFA smaple exam. I know it is old, no money for the current ones.
so you say, it is material but public?
i’m pretty sure the answer is A, since the info is both material and non-public. I remember seeing this question recently on one of the practice exams, and I know there’s a violation.
This was a question on the CFAI Ethics self test I took this test twice. First time I marked Gaines violated the Code and Standards because he has a material misrepresentation in his report. and it was wrong. 2nd time: Gaines violated the Code and Standards because he used material nonpublic information. and that too was wrong. So choices that remain (and are correct as per the test are:) Gaines’ actions did not violate the Code and Standards. OR Gaines violated the Code and Standards because he failed to separate opinion from fact. Since I do not see any opinion / fact in this one — he has done research, which is evident in the fact “Gaines uses this information along with ot her information he obtained from the company distributed to the public in a research report that includes a buy recommendation for firebiard stock” I would go with DID NOT VIOLATE. I believe someone else did do the test later, and marked this choice and got it correct. CP
Is the logic then supposed to be that because the IR rep. disclosed this information, then it can be assumed that this information is available to the public? These questions are too much semantics and too little ethics.
The only way that this is not a violation is if the information is not material (it is certainly not public). I’d argue it’s not material - it’s not an order win, just that they are in late stage development. But it is semantics.
Conference calls are public information so the answer is D. You can get conference call info online, just go to a company’s website under investor relations. Some transcripts are published on message boards same day or t-1, 2, etc.
<> Not true according to CFA curriculum. “Issues of selective disclosure often arise when a corporate insider provides material information to analysts in a briefing or conference call before that information is released to the public. Analysts must be aware that a disclosure made to a room full of analysts does not necessarily make the disclosed information ‘public.’” (Volume 1, pg. 39).
however that info is being used with other public information by Gaines to make a recommendation - -so under Mosaic theory its permissible.