Question

QUESTION 39

1. Lydia Ty, CFA, an equity analyst of a brokerage firm, was sitting next to the in-house legal counsel of Penguin Corporation on a flight from China to New York. While the legal counsel was working on a document on his laptop computer, Ty noticed that the document was related to a major lawsuit against Penguin by the Chinese government. As soon as Ty arrived in New York, she conducted a thorough analysis on the impact of the lawsuit on Penguin and found that it could potentially shut down all of Penguin’s operations in China. She then issued a sell recommendation on the Penguin stock. Which of the following statements is most accurate?

	a.	Ty did not violate Standard II (A) Material Nonpublic Information since her act was allowed under mosaic theory.
	b.	Ty did not violate Standard II (A) because she did not personally benefit from the information.
	c.	Ty violated Standard II (A) because she used material nonpublic information.

Answer 1

a is false. Her act is not allowed under mosaic theory since the theory is applicable on analysis of public information which is not the case here. The theory is also applicable to analysis of non material non public information but the information used here was material.

b is false since the Standard is applicable even when the information is used for recommendations to others.

c is TRUE. She use material nonpublic information for investment recommendations and decisions.