Conflict of Interest
Acquisition of Government Allies, Inc.
ECG is anticipating an acquisition of Government Allies, Inc., and plans are being developed for ECG to have an Initial Public Offering (IPO) in the near future which is likely to provide an extensive growth opportunity for ECG. Following due diligence activities on the planned acquisition, it comes to light that a senior ECG executive has a potential conflict of interest in the acquisition candidate. The Code of Ethic specifically forbids this type of conflict. The standard reads as follows:
Standard on Independence and Objectivity. Employees of ECG are required to use reasonable care and to exercise professional judgment to achieve and maintain both independence and objectivity in all of their professional activities. Specifically, employee are forbidden to accept or to indicate that they might accept, solicit or indicate that they might solicit, or offer or indicate that they might offer, any benefit, whether it is a gift, a form of compensation, or a special consideration that could reasonably compromise either their independence or objectivity, or that could reasonably compromise the independence or objectivity of a colleague. (CFA Institute, 2010).
Since the executive and his wife will benefit substantially from the acquisition because of their financial interest in Government Allies, Inc., should the acquisition proceed as planned, the executive and her husband would need to sell, transfer, or otherwise dispose of the shares of Government Allies. It would be a clear violation of the Standard of Independence and Objectivity if the executive and her husband received any ECG stock as a result of the acquisition.
The matter is further compounded by the fact that the executive was on the task force that has been assigned to review acquisition candidates, and compounded further still by the fact that the executive showed favor with regard to moving forward with the effort to acquire the company, Government Allies, Inc., in which she holds shares. The applicable standard reads as follows:
Standard of Misrepresentation and Communication. Employees of ECG are not to knowingly misrepresent any position or information relating to investment analysis, internal or external recommendations about investments, internal or external actions related to investments,...
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