Ethics - Integrity of Capital Markets Question

CFA Level I Ethics
#1

Here is a hypothetical question I made up on my own!

John is a well-known Financial Advisor. During a lunch gathering with his client Abe, John discusses the favorable recommendation of SuperGas he plans to make public the next day. The chef, Jacob overhears the conversation. Both Abe and Jacob buy shares after lunch gathering.

A. Jacob and Abe violated the Code and Standards

B. Abe violated the Code and Standards, but Jacob did not

C. Jacob violated the Code and Standards, but Abe did not

What’s the answer and why (I’ll post the solution once we have a consensus)

#2

Answer - A.

I think, they violated insider trading. Basically Both traded on Nonpublic information. Jacob is the CHEF. not an CFA candidate, so C can not be right (even though he did violate the code). From the looks of it, the information they discussed had not gone public, YET!. so John is clear of wrong doing, because he DID not trade. Abe & jacob however traded on information that was not public!

#3

Answer - B.

Isn’t the code only for investment *professionals*? Also required to follow only if a member/candidate.

#4

The Code and Standard apply only to charterholders, candidates, and members of CFA Institute.

#5

I don’t see any violations of capital market integrity; to violate that standard one has to engage in transactions intended to deceive the market. None of that has occurred here.

I also don’t see any material nonpublic information. An analyst’s opinion doesn’t qualify (unless he has inside information, which isn’t evident here).

The only possible violation would be duty to clients: if John’s a covered person (which isn’t specified) and he tells one client without telling the others, he’s violated that.

It appears that neither Abe nor Jacob is a covered person; they cannot violate the standards because the standards don’t apply to them.

#6

Apparently the correct answer is C. Jacob violated the Code and Standards, but Abe did not.

I’m questioning why the answer isn’t A.

Didn’t John give an advantage to his client Abe by giving him the favourable recommendation before he released the information public?

#7

I thought this was a hypothetical question you made up on your own.

#8

It was adapted from another quiz!

#9

Can you quote the actual quiz?. The role of each person is very essential for the correct answer. Are we are talking about capital market integrity or the violation of the Code and Standard as whole?

#10

The analyst came up with the recommendation and plans to make it public the next day. The question failed to identify if the basis for the analyst recommendation is based of fact or opinion, so the analyst cannot be faulted; the two Abe and Jacob are not a member, candidate or charterholder, thus the rule does not apply to them, so in my opinion, there’s no violation and thus no answer in the options provided.