Preston Partners is an investment management firm that adopted the Code and Standards as part of its policy manual. Gerald Smithson, CFA, has recently added the stock of Utah Biochemical Company and Norgood PLC to all his client’s investment portfolios. Shortly afterwards Utah Biochemical and Norgood announced a merger that increased the share price of both companies. Smithson contends he saw the president of Utah Biochemical dining with the chairman of Norgood, but did not overhear their conversation. Smithson researched both companies extensively and determined that each company was a good investment. He put in a block trade for shares in each company. Preston’s policies were not clear in this area as he allocated the shares by starting with his largest client accounts and working down to the small accounts. Some of Smithson’s clients were very conservative personal trust accounts, others were pension funds who had aggressive investment objectives. Which standard was NOT broken? A) Standard III©-- Suitability. B) Standard V(A)–Diligence and Reasonable Basis. C) Standard III(B)–Fair Dealing. D) Standard IV©–Responsibilities of Supervisors.
B - He used mosaic theory and then did his research.
B- he researched everything extensively. So he had a diligent and reasonable basis.
I agree, ans is B due to Mosaic theory, he did his own extensive research and did not have any material non public information as the basis of his investment decision.
I get what you’re saying about answer B, but why then wouldn’t D be the right answer? What’s the violation for responsibilities to supervisors? I’m just curious of your thoughts…
I agree with mpro…just because they both were good investments doesn’t mean any of them was looking for a deal This thinking only came out because of choice d — there is no mention of a supervisor. Perhaps the part of unclear policies around blocks requires a higher-up to create something more clear…? Help/Hurt at all?
mpro Wrote: ------------------------------------------------------- > I get what you’re saying about answer B, but why > then wouldn’t D be the right answer? What’s the > violation for responsibilities to supervisors? > I’m just curious of your thoughts… The supervisor’s responsibility is to make sure that the policy is simple and detail oriented. Here, the policy was ambiguous as far as the block trades were concerned. So the supervisor failed in his duty.
There is noone under the supervision of Gerald, so i guess that std doesnt come into picture.
what is the qbank question #?
B and not D due to the reasons ruhi22 stated above. The supervisor here is anyone that supervises Gerald, his boss, the top compliance guy, the CEO, or whatever. The policy should be clear as to how block trades are allocated.
Question is “Which standard was NOT broken” My interpretation is…which standard was NOT broken by Preston Partners as well as Gerald Smithson. ANS B
Rakesh – this may be why they included the sentence about the firm adopting the standards/code. Without that, we can only judge Gerald on the Ethics violations
The answer correct answer is B. I got tripped up with supervisor (or lack there of)