Bob, CFA, has recently been heavily marketing an analytical model developed by his colleagues at AF Risk Management, Inc. When marketing he does not mention that he did not in fact develop the model, but he demonstrates its use to its fullest advantage. A client who uses a similar model provided by a competitor of AF incurs large losses and blames the losses on alleged faults in the rival model. At the court case, Bob gives expert witness testifying on his model’s strengths, without mentioning the fact that he did not develop the model. Has he violated the standard against plagiarism? A) Yes with regard to client discussion, no in regard to the court case. B) No with regard to client discussion, yes in regard to the court case. C) No with regard to client discussion, no in regard to the court case. D) Yes with regard to client discussion, yes in regard to the court case. --------------------------------------------------------------------------------------------------- You are a fund manager in Afaslavia, a country with no securities laws. While changing at your local gym, you overhear a man you know to be a director of one of the country’s biggest mining companies boasting to his friend of the discovery of extensive gold deposits that are shortly to be publicly announced. Should you trade on this information? A) No, because it’s inside information B) Yes, because to fail to do so would be to fail to act in your clients’ best interest
B A I am sayin C on the first one as he testified on “his” models strengths, but he did not develop it. Otherwise I think it could be C as I am not entirely sure how testifying has any effect on the fact that he is representing his firm, who did develop the model.
A and A.
With regard to #1, the answer is B. When dealing with clients Bob is representing his firm, so he is not required to disclose that the model was developed by a colleague of his, whereas when dealing with the court he is representing himself and must clarify that the model was developed by his colleagues to stay within the framework. The answer to #2 is B - he may trade on the information. The explanation says that this information is inside, but it is not related to a tender offer, it has not been procured in any way and we owe no obligation of confidentiality. We may trade on the information, and should do so if it is in our clients’ best interests. The only doubt would be if this information alone is not strong enough to form a basis of judgement but that is not an option here." Sounds like I need to read the handbook a couple more times, because I got both of those wrong…
As for the first, I would say the answer is 50-50 correct. The standards say this: “Members and candidates should consider disclosing whether the research being presented to clients comes from an outside source, from either within or outside the member or candidate’s firm. Clients should know who has the expertise behind the report or if the work is being done by the analyst, other members of the firm, or an outside party.” So, he should mention who developed the model, even if it is from within his firm. He did not do that, and may have implied that it was his. As for the second question, it is clearly inside information. 1) director of one of the country’s biggest mining companies 2) … that are shortly to be publicly announced If this is not material non-public info, I don’t know what is.
Yeah, I don’t understand how the guys can say that #2 is B. There is a very similar example in the handbook, about someone riding up an escalator and overhearing a CFO talk to an executive, with it being material non-public info. These two particular questions and their explanations are based on very similar questions from 7city.
Where are these questions from?