Ethics question

Black Beast, CFA, unsuspectingly joins the research team at Wicked & Co., an investment banking firm controlled by organized crime. None of the managers at Wicked are CFA Institute members. Because of his tenuous situation at Wicked, beastl begins making preparations for independent practice. He knows he will be terminated if he informs management at Wicked that he is preparing to leave. Consequently, he determines that “if he can just hang on for one year, he will likely have a client base sufficient for him to strike out on his own.” What should be answer for this question? should he be violating his fiduciary duties because it’s mentioned in the question that he is building the client base sufficient for him? How is he building the client base? Am I missing something to assume that he is using company’s contacts(resources) to build the client base. Organized crime was mentioned in the original question, I just changed the name of the analyst and company. Why is Organized crime mentioned here? Answer to the question is that he is merely preparing to leave so he is not violating of his duties to the employer. I chose violating the standard, assuming that he building client list on his own so I thought probably he is using company resources to build the contacts and also I was confused about organized crime.

Sorry I’m confused, is that how this question is written in your books?

yeah, if it doesn’t say he’s actually soliciting clients to move with him, then he is not in violation.

he can make all the preparations he wants other than getting clients to move

Wouldn’t there be some sort of obligation to report the criminal activities (to law enforcement or otherwise)? It would seem like he is effectively benefitting from a criminal/fraudulent operation, and knowingly so, and planning to continue to do so for another year.

There is no violation YET. This particular case, all you need to be asking yourself “Is Black acting in the best interest of his employers”. He can build his client base and deliver the best service possible. Once he leaves he must leave everything including client lists and contact information with his employer. He can then search out those clients by public methods and have them move over to his practice.

So using the client information directly stolen from the employer is a crime but checking if the same information is available publicly is not. but how about if the employee leaves the job and try to find information publicly. While searching, he discovers the information but the portal or sire where he found this information is in violation of copyright. Now, if this employee uses this information, does he need to retain the name of sources where he got the information from? How does he justify himself that he did not use information from unauthorized possession from the employer. I am not sure if it is the moral responsibility for reporting the organized crime.

sgupta0827, you sound like me on my full pass through ethics. The quant makes sense, but we dig far to much into the qualitative. The end game in ethics is far to messy! Here is my best shot: You cannot use the INFORMATION taken directly from an employer (scrap piece of paper with names on it) but you can use the KNOWLEDGE you obtained. With this said, you can memorize those clients names and then go, look them up in the phone book or online and contact them that way. As far as HOW he found the information that is a grey area. The main thing to remember here is PUBLIC information. So if you used a source of information avaliable to the general public, your golden. If you hacked playstations network…well that is not public information. You are correct, illegally or unethically obtaining information is NOT a violation of this standard, but would be a violation of many others. Hope that helped.

On the last point, you didn’t hack it yourself. Someone else did and posted online. You just used it. Do you have to keep the record of the source?

I personally haven’t ran across anywhere in the SPH or the CFAI materials stating SPECIFICALLY to keep records of the sources you obtained clients from. However, best practice would tell us to keep detailed documentation for seven years. Also, using the hacked material without knowing it was hacked would likely not be a violation. Using the information knowing it was hacked would be, although which standard is tricky. Probably standards I and VII.

Thanks cfacal…That is helpful!