Schweser Ethics Question

For those with this year’s study material… Book 1, Page 117, question 7.

This question is about whether any of the standards were violated while producing the research report.

The three key points, IMO:

  • “… he is listening to a recorded Barron’s interview with Simpson’s CEO… has struck a licensing agreement with Simak Foundry, a privately held chip fabricator in Malaysia.”
  • “Then he reads in The Asian WSJ that a Malaysian bank has loaned $500 Million to Simak for construction of a new plant.”
  • He then talks to a PR firm rep and is told this… “she refuses to identify the firm but does provide some impressive performance numbers for the new chip.”

The analyst then goes on to do his own research on Simpson’s patent portfolio, confirms that the specs of the new chip will match the public patent filings, and so on.

The question is whether any standard was violated. The question makes it clear that Barron’s announced a deal for Simpson and then a separate source confirmed that the company Simpson licensed with is getting a large loan, which supports the belief that this is going to be a big winner.

I’m confused though, because while I understand that the deal itself is well known, the performance figures on the chip are not clear if they were already known. Couldn’t that be private material information, and using that in the research report and as part of the analysis would constitute a violation, right?

Any thoughts? (Seemed like this fell down the page #'s very quickly…)