Ethics Question -

John is a portfolio manager at XYZ . John manages a billion-dollar hedge fund and two large mutual funds. Market declines cause significant losses for all of the accounts. Unable to find bids for certain thinly-traded stocks, John trades the stocks between the accounts to provide liquidity and pricing. John LEAST likely violates the CFA Institute Standard relating to: A. Misconduct. B. Misrepresentation. C. Market Manipulation. D. Loyalty, Prudence, and Care.


C, market manipulation.

D) Cause additional liquidity/higher prices would benefit clients

again, I read most likely instead of least likely.

the question asks for LEAST LIKELY…I thought the corect answer is (B)

So, is the answer (D) or (B)??

A and C are definitely wrong. A) Misconduct through market manipulation. Trading between accounts is ‘creating’ a fictious market. C) Market is being manipulated through trades that do no represent really bid/ask pricing I guess probably safest to also assume that B - misrepresentation is incorrect because the prices are false.

Ok - (B) !!

I will argue that you are misrepresenting the liquidity/ prices of the issue!!! But that’s just my thought!!!

I think the answer is D, What he is doing is wrong no doubt but it is for the benefit of his clients. By doing this though, he is Misrepresenting the funds to potential clients. A new investor will see the fund as more attractive, so I don’t think the answer is B.

I think it would also violate “D” D. Loyalty, Prudence, and Care. Please some one pick up the correct Answer !!

’ new investor WILL see the fund as more attractive’

My vote was D

it asks for LEAST likely, so you may have an argument that he is violates Loy, Pru & Care but he is definitely violates the other 3. So it therefore, it becomes the LEAST likely.

Right. And in this scenario, the clients are probably being the least damaged whereas capital markets are getting screwed through your misrepresentation, misconduct, and mkt manipulation.

“”""“D”"""" LOCKED ! Thanks for your responses !

Can we safely assume “Misconduct.” for any misconducts outside of your regular professional life that negatively reflect on the investment profession? How does trading between accounts become a misconduct while it is market manipulation?

I think misconduct applies like a double violation for many elements of the code.

shahravi123, Do you have the real answer from the source?