I cannot read this question effectively. You cannot make wall street references and have Gordon be a lawyer. If CFAI pulls anything like this I will flip a shut door.
Betsy Fox is an investment advisor who has a client, Don Gordon, who is an employment lawyer. At lunch, Fox noticed Gordon and the Chief Financial Officer of Blue Star Company at the next table. She overhears them talking and ascertains that Blue Star is about to announce higher than expected earnings. Before the earnings release, Gordon contacts Fox and asks her to purchase 3,000 shares for his portfolio. Fox:
A) can purchase shares for Gordon, but cannot ever purchase shares for her personal account. B) can only purchase shares for her personal account after informing all of her clients about the potential of the increase in earnings. C) must refuse to purchase shares for Gordon.
Gordon is her client. so i suppose she’s sorta obligated to do what he wants but not act on the information herself until the earnings release (because it’s material nonpublic information). The material nonpublic information standard is for members and candidates only i guess…
You must protect the market’s integrity at all cost and must never act with material non public information…even if that meant giving your customers the middle finger!..It says so in the book!
I understand that the real answer is C, but personally, I would say A.
By not allowing her client to do the trade, she is actually acting on material nonpublic information herself. By allowing the trade at the request of her client, she is not acting on the information.
From my understanding, you only act on material non public information when you make profit or cause others to make profit using such information at the expense of other market participants.
I think the logic here could be reprhased thus: Should a member knowningly participate in illegal activities or activities that violate provisions of the code of ethics in order to satisfy her client’s request?
In my opinion, choosing A will set a bad precedence with serious consequences. It means CFA members and candidates are free to trade with material non public information so long as they have a client to shift the blame on.
The correct answer is d) Fox is actually the one who made Gordon do the trade and buy BlueStar because Fox’s dad works for BlueStar and Fox wants to run BlueStar, so he convinces his dad to get the BlueStar union on board to do a deal with Gordon, but then Fox realizes that all Gordon wants to do is liquidate the company to cash out the overfunded pension, and then Fox feels really guilty esp because his dad has a heart attack from all the stress so he dumps Darien because she won’t go along with Fox’s plan to get back at Gordon and then Fox runs a really crazy scheme to drive down BlueStar and trick Gordon into selling his controlling shares and Fox saves BlueStar and feels awesome for about 12 hours but then the next day he goes to jail.
Janice Melfi is a portfolio manager for Soprano Advisors. Soprano has developed a proprietary model that has been thoroughly researched and is known throughout the industry as the Soprano model. The model is purely quantitative and screens stocks into buy, hold, and sell categories. The basic philosophy of the model is thoroughly explained to clients. The director of research frequently alters the model based on rigorous research—an aspect that is well explained to clients, although the specific alterations are not continually disclosed. Portfolio managers use the model to assist them in making portfolio decisions, but, based on their own fundamental research, are allowed to purchase securities not recommended by the model. This fact is not disclosed to the clients, because the head of marketing does not think it is relevant. Which of the following statements regarding the portfolio manager’s investment decisions is CORRECT?
A) There is no violation of the Standards. B) Melfi is violating the Standards by using two investment processes that are in conflict with each other. C) Soprano is violating the Standards by not disclosing the fundamental research aspect of the investment process.
Omg. This one. Have to disagree - just because colleagues don’t “conscientiously maintain records” of changes in security regulations doesn’t mean they don’t KNOW them, right??? Are they not online at the SEC??? I don’t see how not maintaining a record constitutes NEGLECT.
Ridiculous.
A CFA Institute member conscientiously maintains records of changes in security regulations. The member notices that his colleagues do not, and does NOT say anything. Is this a violation of Standard I(A)?
A) Yes, because the member is bound by the Code of Ethics. B) Yes, and the member should disassociate from these colleagues. C) No, as long as the colleagues do not violate the new rules.
Your answer: C was incorrect. The correct answer was A) Yes, because the member is bound by the Code of Ethics.
The last bullet point of the Code says that a member shall “Maintain and improve their professional competence and strive to maintain and improve the competence of other investment professionals.” Ignoring the neglect of rule changes of others would clearly be incongruent with this component. As long as the colleagues do not violate the laws, the member does not have to disassociate himself from the colleagues.
Ethics is about following rules and the stricter of the rules set by the local body, government or the CFAI (if your a CFAI member or student).
As a CFAI member, you are:
MUST maintain the records.
MUST take effort to correct wrong doings or at the very least disassociate yourself from that.
Here he did neither!
Note: 30% tax set in my country, I dont know why I am paying tax. I dont get social security nor benefits for paying higher or correct taxes. Ridiculous? YES, can I do something about it? - NO!
