Ethics quiz1: beauty salon

Amanda Brad, CFA, is a security analyst at UpTrend, Inc. During a routine visit to a beauty salon, she learns that a major cosmetic company, Lorean, is expected to present a revolutionary formula for facial cream. Brad buys Lorean stock for her portfolio and prepares a special report on the company. Brad also makes a call to Hillary Lang, another security analyst at UpTrend, to inform her about the news. Lang starts trading on her clients’ portfolios. Brad’s report states that given the on-going research activity at Lorean within the last months, investors can expect some successful new products and a sharp increase in the price of the stock. Lang’s actions: A) violate the Standard of Objectivity and Independence. B) violate the Standards because she trades on inside information. C) violate the Standard of Fair Dealing.




A by process of elimination

def not C …either A or B…seems more like B to me…

NOT A, Because there no one trying to influence my objective research NOT B, Question didn’t point Lorean’s CEO / CFO /Cxx was there at the salon. How is my hairstylist giving me MNPI? C-- Brad (based on some mosaic) is going to publish a report, but buys for herself and tells Lang, disadvantaging other clients who buy research. def C. I’ll stand by it (it’s only a point for my stubbornness)

hmmmmm i see your point on C …bjut how the heck did u gain info that their is a revolutionary new product coming? is this public info …seems like u overheard some insider

solon hairstylist, soloon bartenders, dental hygienists, pet groomers anyone can tip me off about next great product…there is constant rumor mill about Apple’s products on the web…maytimes with details There is no evidence that what “she learns” is actually a fact, or that source is reasonable

sounds like she is utilizing an expert network…

Raj Ratnam?

the winner is: C Details: Lang violates Standard III(B), Fair Dealing, which imposes the requirement to start trading on the clients’ portfolios only after the information is disseminated to all clients. (btw, I cant believe it…)

As one of the AF stalwahts (i forget deriv/pink/pimp/hell/wake/jana…) expressed earlier

this honestly is a terrible question.

aka exactly the type of ehtics question we can see come dday

A) She is clearly violating the standard regarding Suitability (possible) and Reasonable Basis (for sure) to buy these stocks for client portfolios Look how Lang trades even before Brads research is published which COULD be a reasonable basis. “Hey, I heard this comp has great products coming” will never be a reasonable basis. So sad, used to make a 3 pager out of those 2-sentence cases when studying law and now I have to shoot from the hip in the middle of the target to cross one of 3 options…sigh P.S. - Q is about Lang, so Brads actions (trading for own account) are irrelevant re the C-takers P.P.S. Never scored below 70% on ethics part

Def no B. The text doesn’t indicate how the info was obtained, so we cannot say for sure that was insider info Def not C. Brad violated Fair Dealing (not Lang) by trading on his own account first A is the answer.