Question #3
Reading: Reading 42.2 Standards of Professional Conduct Guidance for Standards II
PDF File: Reading 42.2 Standards of Professional Conduct Guidance for Standards II.pdf
Page: 2
Status: Correct
Correct Answer: A
Question
Greg Allen is a security analyst and visits David Dawson, the Chief Financial Officer of Edmonds Company. Dawson reveals a great deal of nonmaterial financial data to Allen, data that Dawson routinely reveals to all security analysts who visit him. From this data and other industry information, Allen conjectures that Edmonds is likely to make a tender offer for another company in the industry, a fact that if true would be considered material to the value of the company. Allen:
Answer Choices:
A. can publish his conclusion in a research report
B. should send a copy of the report to Dawson for verification before disseminating the report to clients
C. must not disseminate the information or use it for trading purposes until the tender offer is announced
Explanation
Releasing information to analysts does not constitute a public release of information.
Dawson's information should be considered nonpublic until it is released to the public.
Allen has used this information, along with other industry information, to come to his
conclusion of a pending tender offer which he can use to trade upon based on the mosaic
theory.