Possession of material, nonpublic information by chance (Schweser 2015 mock vol 1 exam 2 Q. 8)

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Hello,
I’m having some difficulty understanding Schweser’s answer on practice exam vol 1 Exam 2 Question 8
“Bracco is convinced from his research, based upon various public sources, that Stiles is on the verge of perfecting this technology and will be the first time to bring it ot the marketplace. One day Bracco happened to be in a stall in the bathroom when banker and colleague came in and discussed the fact that Stiles had perfected the technology, which will greatly increase the price of Stiles’ stock.”
Answer says Bracco is not allowed to trade on material, nonpublic information.
If he overheard the bankers before doing his own research, I agree that he should not trade. However, he had already done his own research and came to the conclusion that Stiles provided an opportunity for his clients, before overhearing banker’s remarks. How is it fair that now he can’t buy those shares for his clients because he decided to go to the washroom before executing the order?
 
Standard II(a) Recommended procedures clearly states that he should make reasonable efforts to achieve public dissemenation of the information by encouraging issuing company to make that specific information (perfecting the technology in this case) public and must not take any investment action on the basis of this information.
 
^ disagree. The guy was mosaic-ing (now it’s a word) and reached this conclusion. Why he should seek disseminating the information just because 2 dudes were socializing while pissing? What they have said met his PRIOR conclusion. The guy is smart. He deserves the alpha.
Writers of Ethic questions should go out more frequently. They need to see more people. Have a relation. And hopefully find love.
 
Keep it simple, folks. Does he or does he not have material, non-public information? He does. The fact that he reached the same conclusion earlier on is now irrelevant in a Court of Law.
p.s. Sounds like Bracco was dropping a deuce at work when he overheard the chatter. Had he done his biz at home, he probably wouldn’t be in this predicament.
 
This is not even material non-publlic information.
A banker and a colleague dont add up to “reliable source” to me unless they are part of the management , involved in the developement of the technology, or the bank that the banker works for funds the project.
However, one can also argue that being a “fact”, the information is material. In this case, he should not act on it because he is now acting on the information instead of the research because he didnt act on his research when he had the chance. The new information/fact is what’s propelling him into buying.
This is exactly why I only use CFA books for Ethics.
 
tozerrt wrote:
Keep it simple, folks. Does he or does he not have material, non-public information? He does. The fact that he reached the same conclusion earlier on is now irrelevant in a Court of Law.
p.s. Sounds like Bracco was dropping a deuce at work when he overheard the chatter. Had he done his biz at home, he probably wouldn’t be in this predicament.
Click to expand...
Maybe we should add taking shits at work to the list of no-no’s from the CFAI board ;)
 
^^No, that’s just common sense. Hate walking into the bathroom at work to take a pi$$, and suddenly have to breathe in the shrapnel from someone’s a$$ grenade.
 
if he can document his research (i.e., date it properly), he could still argue that he acted under the mosaic theory
 
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