Ethic Questions... president, directly, companies

dkishore1

So Im just going through the Ethics Section (did other sections first), and ran into some questions, So i figured I post my questions in this thread for further clarification.

Ill start with this one, not really a question but it got me thinking about the scenario. I am not sure if I am allowed to directly copy the example from the schweser text so ill just paraphrase

"Mrs X is in an elevator when she overhears the CFO of company X tell the president of Company X that the companies eranings for the past quarter have dropped significantly, information which will not be released till next week. Mrs X immediately calls her broker and tells her to sell her Company X Stock"

Ok so I know this is an obvious violation of Standard II (A) material nonpublic information, but I was thinking how difficult and helpless it must be for someone like Mrs X to overhear such material information. So basically she just sits there and waits till next week when she knows her stocks will plunge? is there anything she can do? I mean its not like her went out of her way to try to get this information or snoop around, she was just in the wrong place at the wrong time...



Edited 1 time(s). Last edit at Saturday, August 29, 2009 at 06:25PM by 918.

Maddin

Thanks for the reply guys, I apologize for the unclarity, I simply replaced the name in the example with Mrs X. Cpme to think about it, the example in the schweser text didnt event state anything about her, didnt state her job title or if she was a CFAI candidate/member. What would you do on an exam, assume she is just a normal civilian or someone who is a member of the CFAI institute?

ps. for future reference, am I allowed to post questions on examples taken from schweser or CFAI text book? or is that a copy right issue.

thanks

Wasteoftime

Absolutely. Sounds a little unfair on its face when you personalize the facts of how one can inadvertently obtain insider information by no fault of their own, but this is absolutely against the law. As a practical matter, the non-investment professional who just happens to be on the elevator and hears the information has very low odds of getting caught and/or prosecuted but I'm not one to play the odds with my freedom or my conscience for that matter.

bapswarrior

How exactly is this a clear violation? Who is Mrs. X and what fiduciary responsibility does she have toward the Company?