Deloris Johnson, CFA, suspected that her intern, who was working without pay at her brokerage firm, had violated a federal securities regulation. Johnson discussed the matter with her company’s legal counsel who said that the intern’s conduct was illegal. According to the CFA Institute Code and Standards of Professional Conduct, Johnson can dissociate herself from this illegal activity by: A) transferring supervision of the intern to another person. B) reporting the violation to CFA Institute. C) reporting the activity to the appropriate authorities. D) telling her intern to stop such conduct. Your answer: D was incorrect. The correct answer was C) reporting the activity to the appropriate authorities. Johnson can dissociate herself from the illegal activity by reporting the activity to the appropriate authorities. However, the Code and Standards do not require that she report legal violations to the appropriate governmental or regulatory organizations, but such disclose is prudent in this circumstance. By transferring the intern to another supervisor this may not solve the problem of the illegal activity occurring and the company would still be held liable for it. In the CFAI text, it says that one would dissociate by confronting the person who is in teh wrong. It doesn’t require reporting to the authorities. So how come in this question does reporting to authorities outweigh confronting the intern. thanks
C) reporting the activity to the appropriate authorities. Manager responsibilities are different. They may not dissociate from an employee working under them. This is a bad question overall IMO. More appropriate would be some internal reprimands which would lead to termination if the actions continued.
These kind of questions is what makes ethics tough. The answer is either C or D and if I had to guess it would be more C than D. Telling someone to stop isn’t really good enough.
But I thought reporting unethical activities to trhe authority is an optional procedure, where confronting the person is under guidance. How can a recomended procedure come before a peice of guidance?
It is an optional procedure but you have to look at the answers. It can’t be A because simply transferring the intern would not stop the problem. Can’t be B because the intern is not a CFAI charterholder and the CFAI would not care. So that means you have to find the best answer between C and D. D can’t be right because telling her to stop it does not dissociate herself from the intern. She is still responsible for what the intern does. That leaves C.