Schweser ethics confusion

Hi, there is a question/solution in the Ethics section that has me confused. I thought the answer would surely be “Material Nonpublic Information,” but the solution says that it is “Loyalty.” The solution explanation says that he expresses his analysis on his blog before telling it to his employer, but the question content doesn’t make that clear, IMO. I’ve looked up the question and it seems like in previous versions of Schweser’s program, they had similar questions and solutions where the answer was, in fact, “Material Nonpublic Information.”

Can someone please help me in explaining why it’s not II(A)?

Michael Malone, CFA, is an investment analyst for a large brokerage firm in New York who covers the airlines industry. After hours in his personal time, Malone maintains an online blog on which he expresses his personal opinions about various investment opportunities, including, but not limited to, the airlines industry. On his blog, he posts a very negative investment opinion about WestAir stock. Malone knows that WestAir’s stock will be downgraded to a “sell” by his firm next week. Malone has most likely violated:

A) violated Standard IV(A) Loyalty.

B) Standard VI(B) Priority of Transactions.

C) violated Standard II(A) Material Nonpublic Information.


By expressing his investment analysis on his personal blog ahead of his employer, Malone deprived his employer of the benefits of his skills and abilities and therefore violated Standard IV(A) Loyalty. Malone did not possess material nonpublic information about WestAir and no transactions have taken place.

(Study Session 1, Module 2.1, LOS 2.c)

What material, nonpublic information about WestAir do you think that Malone possesses?

I did not ready any material information on the question which is basically any information that a rational investor would want to know before making an investment decision, or any nonpublic information on the question.

Also, candidates and CFA charter holders are allowed to express their opinions publicly whether positive or negative.

I think the original poster is assuming the knowledge of the forthcoming downgrade is “material inside information”…I can see that point of view. But this knowledge may not rise to the level of material inside information and I think this is why loyalty to employer is the correct answer.

Thank you all. Yes, my thinking was that the analyst’s knowledge of a future downgrade would be material and nonpublic, and he may not so readily rant against a company if he weren’t so confident in its short-term future.

What I didn’t like about Schweser’s explanation was that it assumes that Malone wrote his blog before making any of his opinions known to his employer. I don’t think we can deduce that given the information.

What is so odd is that when I was looking up this question before posting, I only found older versions with slightly different wording. THe correct answer in this older question is the one I thought it was (material nonpublic), but the “Loyalty” wording has changed somewhat:

A) violated Standard IV(A) Loyalty by divulging confidential information that is the intellectual property of his employer.

What are your guys’ thoughts?

I feel his knowledge of the company’s downgrade next week would affect his decision to publicly post such a negative review. Please see my post below for further clarification – thank you very much.