Question #43
Reading: Reading 42.1 Standards of Professional Conduct Guidance for Standards I
PDF File: Reading 42.1 Standards of Professional Conduct Guidance for Standards I.pdf
Page: 17
Status: Correct
Correct Answer: B
Question
WEB, an investment-banking firm, is the principal underwriter for MTEX's upcoming debenture issue. Wendy Berry, CFA, an analyst with WEB, has found out from an employee in MTEX's programming department that a serious glitch was recently discovered in the software program of their major new product line. In fact, the glitch is so bad that most of their orders have been canceled. Berry checked the debenture's prospectus and found no mention of this development. The red herring prospectus has already been distributed. Berry's best course of action is to:
Answer Choices:
A. notify potential investors of the omission on a fair and equitable basis
B. inform her immediate supervisor at WEB of her discovery
C. take no action because this is material non-public information
Explanation
Berry should report this information only to her immediate supervisor. Subsequently, she
and her supervisor may consult with legal counsel concerning the competing issues in this
situation. For the present, she should avoid disclosure to colleagues who do not need to
know the information and she should also avoid disclosure to clients.
(Module 42.1, LOS 42: I(A))