Jim Kent is an individual investment advisor in San Francisco with 300 clients. Kent uses open-ended mutual funds to implement his investment policy. For most of his clients, Kent has used the Baker fund, a small company growth fund based in Boston, for a portion of their portfolio. As a result he has become very friendly with Keith Dunston, the manager of the fund, whom Kent feels is mainly responsible for Baker’s performance. One day Dunston calls Kent and tells him that he will be leaving the fund in four weeks and moving to San Francisco to work for a different money management company. Dunston is seeking suggestions on housing in the area. Baker has not yet announced Dunston’s departure. Kent immediately finds a fund that is a suitable replacement for the Baker fund, and over the next two days he calls his 30 clients with the largest dollar investments in the funds and tells them he feels they should switch their holdings. Baker feels the remaining clients’ positions are small enough to wait for their annual review to switch funds. Kent has: A) violated the Standards by not dealing fairly with clients but has not violated the Standards regarding material nonpublic information. B) violated the Standards by not dealing fairly with clients and regarding material nonpublic information. C) violated the Standards regarding nonpublic information but has not violated the Standards in failing to deal fairly with clients. D) not violated the Standards.
B?
i’m a sucker for the violations everywhere choice. will take B.
A
I’d go with A. The dude leaving the firm isn’t material-public information as such. Kent only believes that he is the rock star of the Baker Fund - that doesn’t mean the investors will change their decision if they find out he’s leaving etc - hence non-material.
That was my reasoning too, mumu.
yeah…Great minds think alike they say… always wondered…who is “they” (A better be right!)
You guys didn’t get tripped up like me. A is correct and mumu’s reasoning is correct.
*jumping up and down on office chair*
Now what if the question had asked about an employement report that was posted online before it was supposed to without a press release and the trader that discovered it made money using that info… Oh the pain!
if it was available online…it becomes public…whether or not they issued the press release…ie. their fault can he act on it? probably…using some crazy mosaic theory soup…
This was an actual question on the 2006 exam and the AF debate over the answer raged for months. Bad memories.
well we now have the L2 2006 exam in our hands…so have you checked the answer?
Conveniently, it appears to not be there…I’m sure they didn’t want a ton of people arguing over the answer.
you serious? so the real CFA 2006 exam questions claimed by schweser…aren’t real?!? really?
I can’t wait to find out if Hedge Funds can be suitable for a well diversified conservative invester.
I’m only talking about the past exam questions in the CFA text…wasn’t aware of that Schweser had some. I don’t think they were claiming to show all the questions, just some.
schweser is just consolidating those from the cfai text practise questions -those marked as 2006 CFA exam question
What if Jobs was about to leave Apple? Would it be considered material non-public information? It’s not clear if other shareholders feel the same way as Kent… ??