|Author||Topic: Tricky question on Ethics|
|Frank is the top institutional salesman at Dewey. He has many active outside interests . Which of the following must he disclose to his employeer?
a. A set on the Board of Directors of a small, private biotech firm.
b. Ownership of 200 shares of IBM.
c. None of the above.
The answer to this didn't seem obvious to me and after having a group discussion we seem to lean toward different explanations and still not convinced on what's the best reasoning for the answer. Let me know, what is your answer choice and short explanation why. Your feedback is really appreciated.
|The answer is C.
Participation in the outside board of directors need not be disclosed since the firm is private. And owning 200 shared does not represent material ownership of securities.
|I guess my question is why does a company being private differ? If he's an CFAI member, shouldn't the ethics rules apply regardless of the nature of the company? I don't recall any differentiation between public/private in the Ethics book but I suppose I'll have to double-check.
Also, why is the share ownership immaterial? What would constitute material ownership.
|Actually if one share of IBM costs 1000$, this may be a material interest. I suppose the employee is not the one to say whether it is material or not - it is the employer. So employee should give the employer a chance to assess his conflict of interest. For example if the employee is selling IT shares of some companies and IBM shares are very expensive, this may constitute a conflict.
I would go for B
|In such questions we must be looking for conflict of interest as well as interest of employees. Him being sales person would affect his employer as the time allocated for his employer might get reduced, hence must be disclosed. Owning shares in IBM wouldn't have any effect as he is a sales person.|