Ethics Teasers

Q1 Lautenschlager has completed her due diligence on a petrochemical company and is preparing to issue a somewhat negative report on the company that will include a “sell” recommendation. She gives a final draft of the report to company management to review for factual accuracy. The CEO of the company is highly upset by the report and threatens to cut-off her access to company officials and bar Lautenschlager from conference calls and other avenues of communication with the company if the report is published. Lautenschlager’s BEST course of action is to: a] Publish the report with the analysis intact, but remove the “sell” recommendation. b] Revise her analysis of the company in light of management’s objections to the report. c] Allow company management to make revisions to de-emphasize the negative factors but maintain the “sell” recommendation in the report. d] Publish the report as written, regardless of the objections by company management. ----------------- Q2 Which of the following statements clearly CONFLICTS with the recommended procedures for compliance presented in the Standards of Practice Handbook? a] Personal transactions include transactions in securities owned by the employee and members of his or her immediate family and transactions involving securities in which the employee has a beneficial interest. b] For confidentiality reasons, personal transactions should not be compared to those of clients or the employer unless requested by regulatory organizations. c] Prior approval must be obtained for the personal investment transactions of all employees. d] Investment recommendations may be changed by an analyst without prior approval of a supervisory analyst. ---------------- Q3 As part of his responsibilities as a research analyst, Gonzalez, along with several other analysts, takes a tour of the corporate headquarters and meets with management of a large electronics company in Asia. The company pays for the travel and accommodations of all the analysts participating in the 2-day tour and hosts a dinner, a golf tournament, and a sightseeing excursion for them as part of the trip. Under these circumstances, Gonzalez: a] Should not accept reimbursement for his travel and accommodation expenses and should not attend the dinner or participate in the golf tournament as doing so may impinge on Gonzalez’s independence and objectivity. b] May attend the dinner and participate in the golf tournament and sight-seeing but not accept reimbursement for travel and accommodations. c] May accept the reimbursement for the travel and accommodations because the firm paid for all the analysts and did not show favoritism to Gonzalez. d] May attend the dinner and participate in the golf-tournament and sight-seeing excursion because Gonzalez considers these modest “perks” acceptable in the normal course of business. -------------------- Q4 When a corporate issuer, seeking to increase their visibility with potential investors, hires an analyst to write research on their company, the analyst must do all of the following EXCEPT: a] Engage in thorough, independent and unbiased analysis of the company. b] Strictly limit the type of compensation received by the company so that the compensation is not based on the content or recommendation contained in the report. c] Disclose in the report that the analyst is being paid by the company to write the report. d] Allow the company that paid for the report to review the analysis and recommendations.

1 D 2 B 3 A 4 D


niraj_a Wrote: ------------------------------------------------------- > DDAD Niraj, I am not sure that you should follow your supervisor for changes to recommendations. The analyst needs to use his own independent judgement while doing so.

smeet, very true buddy, but option D says approval in a regulatory sense so he does need approval as a regulatory rule from his superior analyst. differences in say the CAGR or Buy/Sell recommendation can be documented and revised imo. wats the answer Ghanem016?


I don’t have the answers to all the wuestions. This was from teh self test on teh CFA website - they dont give out answers, only tell you if you’re wrong or right. But i know that some of my answers were wrong 1] D. i think there i consensus on that, plus by elilmination you’re not left with any other option 2] B is not the right answer (i got it wrong too). I suspect its D now 3] A - correct 4] D - was wrong and i;m struggling with that one

Could the last one be B)? That would be very enlightened of CFAI.

can q4 be C? I just read the section on issuer-paid reserach and t says nothing on disclosing in the report the payment arrangment.

I would say D A A B

Ghanem, it must be C the last one. If he respects answer choices A and B, then he successfully avoided putting himself in a position where conflicts of interest might arise, hence he does not need to declare any payment arrangements. Furthermore, their is no mention about his employer in this case in order to think about standard IV (b) which anyways would be declared directly to the boss and not inlcuded in the report. That’s just my thought on it…:slight_smile:

4th one should be D…as it he would not allow that company to make favorable recommendations and manipulate the report

@ cfaboston - its not D

is it B for Q4? I hate these double negation questions!

In fact, he can give the report to the company to check for factual errors, and the analyst is not required to consider the pressure that an unhappy management would make, as long as his/her recom. were diligently made. (a) and © are a given, so the only one remaining is B cfaboston28 Wrote: ------------------------------------------------------- > 4th one should be D…as it he would not allow > that company to make favorable recommendations and > manipulate the report