The Folly Of Material Non-Public Info member, source, tender, having, anything

Jupiter

How in the hell would the housekeeper know that the conversation was about a tender offer?!? She merely saw them talking, didnt hear anything, and even if she did, she is NO way a credible source.... What do you guys think??


A stockbroker who is a member of CFA Institute has a part-time housekeeper who also works for the CEO of Festival, Inc. One day the housekeeper mentions to the broker that she saw the CEO of Festival having a conversation at his home with John Tater, who is a nationally known corporate lawyer and consultant. The stockbroker is restricted from trading on this information:

A) if the housekeeper says the meeting concerned a tender offer and the broker knows that it is non-public information.

B) for both of the reasons listed here.

C) only if the broker knows that the meeting is non-public information.


Your answer: C was incorrect. The correct answer was A) if the housekeeper says the meeting concerned a tender offer and the broker knows that it is non-public information.

Standard II(A), Material Nonpublic Information, states “a member cannot trade or cause others to trade in a security while the member possesses material nonpublic information” A tender offer would certainly be material nonpublic information. Knowing that the meeting took place, and nothing else, does not restrict the broker. A reasonable investor would need to know more to determine if the information was material.

Flok

some of the questions here seem to be the reasons no one has ever gotten 100% on this test.

I would have said B, especially since answer A contains answer C.

If she says she saw them together(heard nothing) and then the broker looks through the news for clues and analyzes the financials discovering that there could be a tender offer coming...is that mosaic theory, or tainted because the first meeting was in private?