CFA Practice Question

CFA Practice Question

Shawn Tiber is a portfolio manager for the pension plan sponsored by Mackinaw Gold Mines. Shawn usually speaks once a week with Charles Goldberg, CFO of Mackinaw. Mackinaw also conducts investment banking business with Shawn's firm. In one such weekly conversation, Shawn learns that Charles is going to leave the company shortly and join a competitor. The competitor is known to be a major donor to the local arts charity. After his conversation, Shawn runs into the chairman of the local arts council (of which he is a member). He informs the chairman of Charles's new appointment and suggests that he contact Charles to solicit funds for a new building. Shawn has ______
A. not violated any standard as he has merely passed on trivial and non-financial information related to his client.
B. violated Standard III (E) - Preservation of confidentiality.
C. violated Standard II (A) - Material nonpublic information.
Explanation: Shawn has violated Standard III (E) - Preservation of Confidentiality by using private and confidential information provided by a client in the course of a professional relationship for an unintended purpose (irrespective of how noble the cause may be). Clients' trust should be maintained at all times, unless the information concerns illegal activities.

User Contributed Comments 6

User Comment
crazyman I think C can also be right. This information is nonpublic. It can also be material - when a top executive (like the CEO or CFO) quits it can move the stock price. Investors may get nervous about the company in this situation and sell. Or if the executive has done a poor job, the stock price could jump up on the news.
xiong if nobody uses the info to trade then it cannot be C.
ontrack Shawn has violated both-confidentiality and material non public information.
copus C is not correct. Although the information is material non public, it needs to be remembered that receiving such information is not a violation. Acting on this information in a way that results in a benefit (direct or indirect) IS a violation.
alallstar copus, Shawn not only received this information but shared it with others, and advised them to act on it for their own benefit.
MaresaJaden Information is material and non-public if knowledge of the information would influence the price of a security. Since we are not talking about influencing a security price or the markets C. is incorrect.
You need to log in first to add your comment.