Staci Sutter works as an analyst for Independent Investment BankShares (IIBS), which is a large investment banking organization.She has been evaluating an initial public offering (IPO) that IIBSis handling for a technology company named ProTech Incorporated.Staci is essentially finished with her analysis, and she is readyto estimate the price for which the stock should be offered when itis issued next week. According to her analysis, Staci has concludedthat ProTech is financially strong and is expected to remainfinancially strong long into the future. In fact, the figuresprovided by ProTech suggest that the firm’s growth will exceed 30%during the next 5 years. For these reasons, Staci is consideringassigning a value of $35 per share to ProTech’s stock.

Staci, however, has an uneasy feeling about the validity of thefinancial figures she has been evaluating. She believes thatProtech’s CFO has given her what he believes are “quality financialstatements”. Yesterday Staci received an email from a friend, whowas an executive at ProTech until he was fired a few months ago,that suggests that the company has been artificially inflating itssales by selling products to an affiliate company and thenrepurchasing the same items a few months later. At the same time,Staci received a memo from her boss, Mr. Baker, who has made itclear that he thinks the ProTech IPO can be extremely profitable totop management “if it is handled correctly.” In his memo, Mr. Bakerindicates that the issue price of ProTech’s stock must be at least$34 per share for the IPO to be considered successful by IIBS.

Part of Staci’s uneasiness stems from the fact that a coworkerconfided that she had seen the CEO of ProTech and his wife at anamusement park with Mr. Baker and his wife last month. If shediscovers that ProTech’s sales figures are inflated, Staci surelywould assign a different value to the company’s stock for the IPO.But it will take her at least two weeks to completely reevaluatethe company using different data. Staci knows that if she stayswith her current analysis and she is wrong, the consequences candestroy IIBS because reputation is important in the investmentbanking business.

If you were in Staci’s situation, what would you do? (Pleaseaddress in your initial post the following: (1) What is the ethicaldilemma? (2) Should IIBS delay the Protech’s IPO until moreinformation can be gathered about “information” Staci receivedrecently and (3) What action do you think Staci, IIBS, or bothshould take? Please be detailed in yourresponse.