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If Roberts suspects someone is engaging in activities that are illegal or violate the Code and Standards, Standard 1(A) Knowledge of the Law requires him to dissociate from the activities if he cannot remedy the situation. In this situation, the teammate is acting within the applicable laws but is violating CFA Institute Standards of Professional Conduct. When the Code and Standards are stricter than applicable law, the Code and Standards apply to members and candidates. However, Roberts is not required by the Code and Standards to report violations of laws or the Code and Standards to CFA Institute or to governmental regulators, although it may be prudent or even required by law that he do so.
Sanctions that may be imposed on members by CFA Institute include:
public censure, suspension of membership, and revocation of CFA charter.
To avoid plagiarism an analyst should most likely disclose:
The sources of both widely available public information and summarized reports of other analysts.
Tom Hayes, CFA, changed firms recently, becoming the senior analyst at Balcom Management. He had earned a great reputation at his old firm with his analysis of Selldex, which doubled in value after his recommendation. Because he still likes Selldex, Hayes recreates from public sources the records and analysis he did at his previous employer and issues a report on Selldex with a “buy” rating. Hayes has:
not violated the Standards.
Matt Jacobs, CFA, recommended to a client that he buy shares in Timeco, which has subsequently underperformed the market. Timeco stock is thinly traded, and its price has decreased sharply over the past few weeks because two insiders have sold large blocks of shares. Jacobs believes this price decrease reflects an illiquid market. Because he still believes Timeco is a good long-term investment, he buys shares for his personal account in order to raise the price and help him convince his client to hold on to his investment in Timeco. Has Jacobs violated the Standards?
Yes, because he intended to manipulate the market price of Timeco.
According to the CFA Institute Standards of Professional Conduct, which of the following must least likely be disclosed to clients?
Additional compensation earned by the member from tutoring candidates for the CFA exams in her spare time
Raul Garcia, CFA, an investment manager, is in an advisory relationship with Beta Corporation. One day he receives a call from the local police, who require some information about Beta Corporation, as they suspect it to be involved in money laundering. Garcia gives them whatever information they required. At the time of the call, Garcia was sitting with his coworker, Henry, who overheard the conversation. After leaving Garcia’s office, Henry immediately issued a sell recommendation for Beta Corporation to all his clients. Which of the following statements is least accurate?
Henry violated Standard II (B): Market Manipulation.
American Securities wants to prepare a GIPS-compliant performance presentation. Which of the following is least likely compliant with GIPS? American Securities:
provides a compliant presentation for composites that the firm currently offers to clients, to any prospect who requests one.
Samuel Parkin, a principal of Argora Advisers, is in charge of preparing the firm’s performance history in accordance with GIPS. At the end of each year, he assigns each portfolio to a single composite based on its holdings over the year. He uses the mean annual total return of portfolios assigned to a composite as the composite’s return. With respect to GIPS compliance:
neither of these actions complies with GIPS.
Ronaldo Jenkins, CFA, chief investment officer for Wind watch Advisors, has been helping his local municipality find an investment bank for a bond issue. Jenkins was told in confidence that one investment bank, which is a subsidiary of a commercial bank held in Wind watch client portfolios, is experiencing financial difficulties and will be shut down soon. According to the CFA Institute Standards of Professional Conduct, Jenkins is least likely permitted to:
share the information received about the investment bank with Wind watch’s head of equity investments.
William Rogers, CFA, is a commercial insurance broker who sometimes recommends money managers to his high net worth clients. For those clients who hire the managers, the managers pay Rogers a percentage of the management fees on the account. Rogers tells prospects, “I receive referral fees from the money managers if you employ them.” Rogers has:
violated the Standard concerning referrals.
Which of the following most likely violates Standard III (A): Loyalty, Prudence and Care?
An analyst placing her employer’s interests ahead of her clients’ interests
Craig Boone, CFA, a fixed-income trader, observes that one of the salesmen on the desk has been allocating his trades at the end of the day, giving better execution to large clients, a practice Boone suspects is illegal. The salesman tells Boone this is a common practice and that the firm’s senior management is aware of it. If Boone makes a personal record of the activity, takes it home for his personal files, and subsequently reveals it to regulatory authorities, he would:
not be in violation of any Standards.
Which of the following is least likely a requirement of the GIPS standards? Firms are required to:
have their performance records verified by an independent third party.
Diane Harris, a CFA Institute member, is a portfolio manager for Worldwide Investments. One of her clients has offered her the use of his condominium in Hawaii if the returns on his U.S. equities account beat their benchmark on a risk-adjusted basis. Harris informed her manager of all terms of this agreement in writing and received verbal consent to the arrangement before accepting the offer. Did Harris violate the Standards?
Yes, because written consent from her employer is required.