why is this not ok under mosaic theory?

Lynne Jennings is a research analyst for a large brokerage company following the chemical industry. While flying through Chicago, Jennings visited her sister who works in the airport hospitality center for an airline. Many meetings take place at the center on any given day. At the center Jennings saw several senior officers who she knows are from the largest and fourth largest chemical companies walk into a conference room. She concluded that negotiations for an acquisition might be taking place. She told her sister this, and her sister asked her not to disclose how she got the information. Jennings should: A) write a research report describing that she witnessed the senior officers together in the hospitality center, but need not mention in the report that her sister is an employee of the center. B) not write a research report disclosing the meeting. C) write a research report describing that she witnessed the senior officers together in the hospitality center, and must mention in the report that her sister is an employee of the center. Your answer: A was incorrect. The correct answer was B) not write a research report disclosing the meeting. The information is material and nonpublic, therefore, Jennings cannot trade or cause others to trade.

for mosaic, analyst must have done due diligence for recommendation. In this case, it is non material info.

I wouldn’t have thought it to be a MNPI issue. I would have gone for Reasonable Basis (or the lack thereof in this case) because seeing people talking doesn’t tell you anything, although it may arouse your curiosity and cause you to dig into the theory. I don’t think what she saw is enough to write a research report on. What could you solidly conclude from that? (rhetorical) Where did that question come from?

if they added that she knew that one of the companies was looking to acquire someone, then it would have been mosaic, and ok to disclose i guess…very fine line. just doesnt really seem like material information as the answer states. its from qbank… a crap question as usual.

willispierre Wrote: ------------------------------------------------------- > if they added that she knew that one of the > companies was looking to acquire someone, then it > would have been mosaic, and ok to disclose i > guess…very fine line. just doesnt really seem > like material information as the answer states. > > its from qbank… a crap question as usual. I don’t think so. If it says that analyst is doing research on that company and think that company is target of acquisition and he also sees the meeting between executives of those companies then he can use mosaic theory.

The question is fine. She looked at the companies in conference - and immediately made the assumption that there was an acquisition taking place. there was no basis for that assumption. hence it is possibly MNPI and she CANNOT act on that information. if however - she had linked it up to the financial statements of the companies in question, done some analysis and come to the conclusion that the companies were indeed in an M&A discussion - then it is mosaic theory - and she can allow others to act on the info.

cpk123 Wrote: ------------------------------------------------------- > The question is fine. She looked at the companies > in conference - and immediately made the > assumption that there was an acquisition taking > place. there was no basis for that assumption. > hence it is possibly MNPI and she CANNOT act on > that information. > > if however - she had linked it up to the financial > statements of the companies in question, done some > analysis and come to the conclusion that the > companies were indeed in an M&A discussion - then > it is mosaic theory - and she can allow others to > act on the info. exactly

dont u think she had to have some prior knowledge if she just happened to know that these guys were senior execs of these companies? not sure about you, but don’t think that I would decide that a bunch of guys walking into a conference room were having merger negotiations without having some additional information (likely through her own research)… we dont need to discuss further–the questions wont be this ambiguous on the actual exam…apparently i am just reading way too far into this.

I think it could qualify under Mosaic Theory, up until the point she told her sister. Her sister knew the agenda of the meeting, and confirmed that the meeting was indeed for an acquisition.

> I don’t think so. If it says that analyst is doing > research on that company and think that company is > target of acquisition and he also sees the meeting > between executives of those companies then he can > use mosaic theory. The question didn’t say any of that though. It didn’t say she’s doing research on either company and it didn’t indicate that she suspected an acquisition prior to seeing the execs together. It just says she covers the industry and recognized the people. Then it says she makes a conclusion. Heck, I could pick Bill Gates and Larry Ellison out of a crowd, but that doesn’t mean I assume Oracle and Microsoft are merging just because I see them in an airport lounge together. I don’t think their being together is material info because you can’t be certain of anything from it. (If you overheard them talking about an acquisition, then that’s a different story.) And because you can’t conclude anything, you shouldn’t write a research piece on it. What you should do is investigate your hunch further in the spirit of mosaic and then print your well-supported conclusions.

Well considering that both a and c involve her lying (she didn’t witness anyone doing anything, her sister did) I would eliminate both options on just the simple grounds that she is lying if she makes this statement in any report.