Explanation:
Standards 3.1 and 3.2 relate to the preservation of confidentiality. The simplest, most conservative, and most effective way to comply with these standards is to avoid disclosing any information received from a client, except to authorized fellow employees who are also working for the client. If the information concerns illegal activities by MTEX, the analyst may be obligated to report the activities to the authorities.
(Book 1, Module 11.1, LO 11.a)
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Question 39
WEB, an investment-banking firm, is the principal underwriter for MTEX's upcoming debenture issue. A risk analyst with WEB learned from an employee in MTEX's programming department that a serious problem was recently discovered in the software program of its major new product line. In fact, the problem is so bad that many customers have canceled their orders with MTEX. The analyst checked the debenture's prospectus and found no mention of this development. The red herring prospectus has already been distributed. According to the GARP Code of Conduct, the analyst's best course of action is to:
A
inform her immediate supervisor at WEB of her discovery.
B
keep quiet because this is material nonpublic inside information.
C
notify potential investors of the omission on a fair and equitable basis.
D
report her discovery to the Division of Corporation Finance of the Securities and Exchange Commission.
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