Question #18
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: 11
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
While the information that Allen received from the Edmonds CEO may be non-public, we
are also told that it is non-material. Because Allen has reached his investment conclusion
through an analysis of public information together with items of non-material non-public
information (i.e., "mosaic theory"), publishing this conclusion is not a violation of the Code
and Standards.