One of the fundamental ethical principles for investment professionals is transparency. This principle is embodied in a number of CFA Institute Standards of Professional Conduct, including Standard V(B): Communication with Clients and Prospective Clients and Standard I(C): Misrepresentation. Under these Standards, CFA Institute members must disclose basic information about investments, disclose significant limitations and risks, identify factors that are important to investment analysis, distinguish between fact and opinion, and most importantly, not misrepresent any facts related to investment analysis or their professional activities. At the same time, CFA Standard IV(A): Duties to Employers – Loyalty prohibits CFA Institute members from divulging confidential information about their employer, and Standard II(B): Market Manipulation prohibits members from engaging in practices that distort security prices with the intent to mislead market participants.
In this case, one of Jabari’s responsibilities as CFO of Everett is to provide information about the company to investors and the securities markets so they can make informed investment decisions. Refraining from providing any information about the company (A) will likely not satisfy investors or the financial markets and lead to negative financial consequences for Everett. Although the potential government contract and knowledge that Everett engineers are working on retooling the company’s machines to manufacture medical personal protective equipment is factual (B), Jabari must make sure that this information about the early stages of an enormous new business initiative is not confidential or material nonpublic information. Such information should be disclosed only when it is timely to give to investors generally.
And although the existence and eligibility of Everett for the low-cost government loan program (C) is apparently publicly known, Jabari’s opinion about whether the company takes advantage of this program, the amount of money borrowed, and how the funds will affect Everett’s bottom line seem at this point to be both opinion and speculative. Protecting investor interests and the interests of Everett employees and retirees by maintaining the company’s stock price (D) is a worthy goal. But doing so by circulating false and misleading information in an effort to manipulate the stock price is unethical and a violations of CFA Institute Standard II(B). Although it may be difficult in the uncertain and challenging times, Jabari must work to come up with a balance between helpful, factual information and informed information about the future without disclosing confidential information or overly building up Everett’s financial prospects in a way that could be seen as manipulating the company’s stock price. Under the facts provided, Choice E is the best response.