Tricky Ethic Question

I don’t understand the answer to the following question (SchweserPro QBank 2008) Andrew Mader, CFA, is an analyst with Metro Investment Services. During lunch with some of Metro’s managers, Mader is told, "There are going to be major problems at Gebco (a firm that Metro had brought public last year). I was just over there and the place is just crawling with government inspectors.” Mader had just issued a report with a “buy” recommendation on Gebco last week. Mader should: A) without further research, immediately issue a new report reversing his previous recommendation. B) not do anything because to do so would violate his obligation to preserve confidentiality. C) immediately issue a new report, but only after stopping by Gebco himself to corroborate the story. D) not do anything to avoid a violation of fair dealing. ------------------------- Your answer: D was incorrect. The correct answer was B) not do anything because to do so would violate his obligation to preserve confidentiality. Under Standard III(E), members are bound to preserve the confidentiality of information that they receive in the scope of their employment. There is nothing in the information to suggest that any illegal act had occurred. He is, therefore, obligated not to disclose the information to others until it becomes public. I think that Standard III(E) is all about duties to clients but Metro’s manager is not a client of Andrew Mader…

how about c. it’s not a non-public material info. Mader can issue new report w/mosaic theoty after investigation.

It says above that Gebco was formally a client of the firm. Therefore, unless that information has already been made public by the firm, he has the obligation to keep it confidential due to the prior client relationship.

So, why would stopping by Gebco himself to corroborate the story be a wrong thing to do? He is an anlayst, isn’t he? His job is to look into the situation, and if there is a problem which he then finds fair to report or include in his recommendation, he should. Choice D basically says he should ignore what’s going on (which is a public event anyway) to preserve some preumed confidentiality!! I doubt you will see vague questions on the real exam.

I vote for C