BUS 573 Discussion 2
A Manager’s Dilemma: Putting It into Practice
To Disclose or Not Disclose? Bagley p. 131.
Issue: Does Danimark have a legal duty or an ethical obligation to disclose Nelipern's role in the selection process to potential investors? Is it enough if Danimark's marketing materials to potential investors disclose that Nelipern helped select the portfolio, or should Danimark also disclose Nelipern's adverse interests in the performance of the portfolio? Is this situation any different from a transaction in which an investment bank sells stock belonging to one client to another client? Further consider I-Analytics, International. If I-Analytics uses its own methods and approves the CCBS in the portfolio, how, if at all, should that affect Karol's analysis? Should it matter whether the offering circular states that I-Analytics selected the portfolio? Should it matter that Danimark plans to buy the securities for its own firm account? Discuss.
Danimark does have a legal duty to disclose Nelipern’s role in the selection process to potential investors. It is both legally and ethically not correct if Nelipern’s role in the selection process is not disclosed. It would be like Danimark would be serving the best interest of both the parties – Nelipern & Co., and the potential investors, which cannot happen at the same time. Either one of the party will have to lose. Danimark would be acting unethically if it did not disclose since it would fail in its fiduciary duty to act in the best interest of its potential investors. This is similar to the sequence of events, and transactions in The SEC vs. Goldman Sachs case.
In that deal, Goldman was approached by John Paulson of Paulson & Co. to assemble a synthetic CDO dubbed ABACUS 2007-AC1, in exchange for a $15 million fee. Goldman brought in an outside asset manager (ACA Capital) to aid in the selection of collateral that was to comprise ABACUS. John Paulson played a significant role in the portfolio selection. In the end, it
To Disclose or Not Disclose? Bagley p. 131.
Issue: Does Danimark have a legal duty or an ethical obligation to disclose Nelipern's role in the selection process to potential investors? Is it enough if Danimark's marketing materials to potential investors disclose that Nelipern helped select the portfolio, or should Danimark also disclose Nelipern's adverse interests in the performance of the portfolio? Is this situation any different from a transaction in which an investment bank sells stock belonging to one client to another client? Further consider I-Analytics, International. If I-Analytics uses its own methods and approves the CCBS in the portfolio, how, if at all, should that affect Karol's analysis? Should it matter whether the offering circular states that I-Analytics selected the portfolio? Should it matter that Danimark plans to buy the securities for its own firm account? Discuss.
Danimark does have a legal duty to disclose Nelipern’s role in the selection process to potential investors. It is both legally and ethically not correct if Nelipern’s role in the selection process is not disclosed. It would be like Danimark would be serving the best interest of both the parties – Nelipern & Co., and the potential investors, which cannot happen at the same time. Either one of the party will have to lose. Danimark would be acting unethically if it did not disclose since it would fail in its fiduciary duty to act in the best interest of its potential investors. This is similar to the sequence of events, and transactions in The SEC vs. Goldman Sachs case.
In that deal, Goldman was approached by John Paulson of Paulson & Co. to assemble a synthetic CDO dubbed ABACUS 2007-AC1, in exchange for a $15 million fee. Goldman brought in an outside asset manager (ACA Capital) to aid in the selection of collateral that was to comprise ABACUS. John Paulson played a significant role in the portfolio selection. In the end, it