Ethics! It’s what for lunch today!
yummy!!! I can’t wait.
Will that be served with fries?
Question 1 - 86617 Glenarm Case Study (Refer to CFA Institute Standards of Practice Casebook for details.) Peter Sherman, CFA, has recently joined Glenarm Company after spending 5 years at Pearl Investment Management. He is responsible for identifying potential Latin American investments. Previously, Sherman held jobs as consultant for many Latin American companies and had plans to continue such consulting jobs without disclosing anything to Glenarm. After resigning, but before leaving his employment at Pearl, Sherman had encouraged Pearl customers to move their accounts to Glenarm. He contacted accounts Pearl had been soliciting for business. He also contacted potential clients that Pearl had rejected in the past as too small or incompatible with the firm’s business. Furthermore, he convinced several of Pearl’s clients and prospects to hire Glenarm after he joined the company. He also identified materials from Pearl to take with him, such as: sample marketing presentations he had prepared computer program models for stock selection research materials on companies he had been following a list of companies recommended by Sherman for potential investment, but which were rejected by Pearl news articles for potential research ideas Upon Sherman’s joining Glenarm, which of the following acts did NOT violate the standards? A) He misappropriated news articles from his old employer. B) He allowed Glenarm to advertise the fact that they had hired a portfolio manager who was a CFA charterholder. C) He did not give Glenarm a written statement disclosing his independent consulting practice and details of activities that resulted in compensation since they had already been approved by Pearl-his previous employer.
Have at it! We’ll hash out the answers over lunch. Question 1 - 86923 Michael Smyth is Senior Vice President of equity investments at Systematic Investment Advisors, Inc. (SIA). He manages a team of analysts and portfolio managers and is responsible for maintaining and developing client relationships. SIA is located in a small European country and provides investment management services to high net worth individuals. Smyth is also a Level III Candidate for the CFA designation. One of Smyth’s clients is the Muller-Durand family. He had a long relationship with Helmut Muller. Before Muller’s untimely death, he gave Smyth full discretion over his portfolio based on an investment policy statement that had been refined continuously over the years. Muller was the president of a publicly traded manufacturing company, Comax, and 20% of his portfolio’s assets were invested in Comax equity. His contract with Comax prohibited his selling his Comax shares while he was employed. Muller had little liquidity needs. His children were grown and his salary at Comax was sufficient to cover his annual expenditures as well as contribute to his investment portfolio. A former Chartered Accountant, Muller had been extremely knowledgeable and comfortable with the investment decision-making process. Smyth owns 10,000 shares of Comax and serves on Comax’s board. Smyth played golf with Muller on a regular basis and, with Muller’s help, developed many client relationships from these outings. SIA has a soft dollar arrangement with a local brokerage firm, First Brokerage, owned by Smyth’s sister. Muller had agreed in writing that all trades in his portfolio would be directed to First Brokerage. Smyth purchased new carpets for his office with client brokerage. He believes that his managers make better investment decisions when their environment is pleasant and comfortable. Smyth attended an industry conference in the Bahamas with soft dollars. The program is devoted to improving management of the investment advisory firm. He believes that a well-run firm makes better investment decisions. Smyth consistently uses soft dollars to purchase research reports from an independent research firm that does in-depth analysis of a company’s financial reporting. Several of his managers have commented on the quality and usefulness of these reports to their analysis and decision-making. Smyth has an appointment to meet with Muller’s widow, Wilhelmina Durand. Durand was an artist who had left management of their financial assets to her husband. She is meeting with Smyth to better understand her financial position. Part 1) Which of the following Standards is most relevant regarding Smyth’s meeting with Durand? A) Standard III(A), Loyalty, Prudence, and Care. B) Standard III©, Suitability. C) Standard III(E), Preservation of Confidentiality. Part 2) Standard VI(A), Disclosures of Conflicts, requires Smyth to disclose all matters, including beneficial ownership of securities of other investments, that could be expected to impair the member’s ability to make unbiased and objective recommendations. Which of the following matters would least likely be disclosed to Durand? A) Smyth owns shares in Comax. B) Smyth played golf with Muller on a regular basis and developed client relationships. C) SIA has a soft dollar arrangement with a brokerage firm owned by Smyth’s sister. Part 3) Which of the following best describes Smyth’s compliance with the CFA Institute Soft Dollar Standards in his use of client brokerage? A) Purchase of research reports is an allowable use of client brokerage. B) Purchase of research reports and attending the conference are allowable uses of client brokerage. C) Purchase of both research reports and carpeting are allowable uses of client brokerage. Part 4) Smyth would like to continue to direct brokerage from Durand’s portfolio to his sister’s brokerage firm. In order to continue the arrangement and comply with the CFA Institute Soft Dollar Standards, which of the following disclosures are required? A) Smyth must clearly disclose that his duty as the investment manager is to continue to seek to obtain best execution. B) Smyth must clearly disclose, with specificity and in “plain language,” its policies with respect to all Soft Dollar Arrangements. C) Smyth must disclose that directed brokerage arrangements that require the investment manager to commit a certain percentage of brokerage might affect his ability to seek to obtain best execution. Part 5) After determining Durand’s risk and return objectives, liquidity needs, tax considerations, and unique circumstances, Smyth has decided that he must reduce Durand’s holdings of Comax shares. He has several other clients, whom he met through Muller, who also have significant holdings in Comax. Smyth has also decided to reduce his own holdings in Comax since his term as a director of Comax will be up in June. He does not plan to seek reappointment but as a member of the audit committee he is privy to information about a tender offer. Smyth realizes this is a complex situation. Which of the following Standards would be least likely to help Smyth decide what actions with respect to selling shares of Comax would be in compliance with the CFA Institute Standards of Practice? A) Standard III(B), Fair Dealing. B) Standard III©, Suitability. C) Standard VI(A), Disclosure of Conflicts. Part 6) Since Smyth is a director of Comax and a member of the audit committee, what additional Standard is specifically applicable to Smyth’s decision to sell his and his clients’ shares of Comax? A) Standard II, Integrity of Capital Markets. B) Standard VII, Responsibilities as a CFA Institute Member or CFA Candidate. C) Standard IV, Duties to Employers. -------------------------------------------------------------------------------- Question 2 - 94871 Mike Johnson, who is sitting for Level III of the CFA exam this year, is a junior consultant at a small investment advisory firm. Julie Gowan, CFA, is Johnson’s supervisor and in the last three months had been letting Johnson develop a clientele. Johnson had met Mrs. Campbell two months earlier as a referral from an existing client: Mrs. Smith. Following his recent second visit with Mrs. Campbell, Johnson gave Campbell a personal data form to complete and return. The purpose of the form was to gather information about Campbell’s financial situation, investment experience, and investment objectives. Upon receiving the completed form in the mail, Johnson had his assistant, who is a CFA Level I candidate, type up the information. Johnson then reviewed the information and determined that he needed to call Campbell to clarify several items and to request more information. When Campbell answered the phone and Johnson identified himself, Campbell immediately asked if Johnson was still confident in the firm’s recommendation to buy shares of Brown Company, which Smith had purchased upon the firm’s recommendation three months earlier. The rapid rise of the stock of Brown Company after the recommendation, Campbell added, was the reason Campbell wanted to meet with a representative of Johnson’s firm. Johnson quickly did a search on his computer and found the buy recommendation on Brown Company that had been sent to Smith and other clients. Johnson then remembered that some of the clients, who were his friends, had been very happy with the stock’s performance. Johnson responded to Campbell by saying that purchasing the stock was a good idea. Johnson then asked for a few details concerning Campbell’s situation, and Campbell answered some questions over the phone. Some of the information was not at her fingertips, so she promised to mail it to Johnson. During the phone conversation, Campbell stated that it is extremely important that the information she is providing to Johnson be considered confidential for several reasons. First, as a result of a lawsuit from a former neighbor, Campbell needs to hide some assets to avoid paying a judgment. Therefore, she wants to open up two separate accounts; a small one in her name, and a second account in the name of the company that Campbell owns. Second, Campbell told Johnson that she is about to file for divorce from her husband and does not want her husband to know about the accounts. After collecting all the information he needed, Johnson visited with Gowan to ask advice about opening the account in the name of Campbell’s company. Gowan told Johnson that Campbell should open the account in the name of a fictitious company instead of using the name of Campbell’s company. This would make it more difficult for the courts to find the assets. However, the supervisor stated, “You realize that opening an account in the name of a fictitious firm is illegal so I cannot suggest that you do it. I am only saying that, if you did this, it would help Campbell accomplish her objective.” Later that day, Johnson went to a restaurant and met his old college roommate, William Black, who is now a divorce attorney. Johnson told Black all about Campbell’s situation and suggested that, if Black needs a new client, he should contact Campbell who is about to divorce her husband. Black said he could not act on the information because Campbell’s husband had seen him already about a possible divorce. Johnson assured Black that, as they had agreed, he did not tell Campbell about the possibility of Johnson passing her name on to Black. Black thanked Johnson for the lead and said that, thanks to Johnson’s referrals, he currently had more clients than he could handle anyway. Despite that, Black paid for the dinner as he usually did when Johnson gave him a good lead. Part 1) Did Johnson violate the Code and Standards by telling Black about Campbell’s impending divorce? A) No, because Black is not going to act on the information. B) No, because the impending divorce had nothing to do with Campbell’s financial situation. C) Yes, he violated client-member confidentiality. Part 2) Did Johnson violate the Code and Standards by the way he gathered information from Campbell using the personal data form? A) Yes, because he failed to collect the information during face-to-face contact. B) Yes, because he permitted his assistant who does not hold the CFA designation to see this confidential information. C) No, he did not violate the Code and Standards by the way he gathered information. Part 3) In his recommendation of Campbell buying the shares of Brown company, Johnson violates the Code and Standards concerning: A) Standard III© Suitability but not Standard V(A) Diligence and Reasonable Basis. B) Standard V(A) Diligence and Reasonable Basis but not Standard III© Suitability. C) both Standard III© Suitability as well as Standard V(A) Diligence and Reasonable Basis. Part 4) Did Johnson’s supervisor violate the Code and Standards when she told Johnson about a more effective way to hide assets? A) No, because the supervisor specifically stated that, “I cannot suggest” that you open an account in the name of a fictitious firm. B) Yes, because the supervisor assisted in an apparent violation of law. C) No, because the supervisor did not take specific action that violated the law. Part 5) Which of the following is a violation of the Code and Standards? A) Black paying for the dinner with Johnson. B) Johnson having the assistant type up Campbell’s information. C) Johnson gathering information over the phone. Part 6) Is Johnson in violation of the Code and Standards if he informs the legal authorities that Campbell is attempting to hide assets from the courts? A) No, because Campbell has done something illegal. B) Yes, because he would be violating client-member confidentiality. C) Yes, because Johnson has only hearsay information about illegal activity and he would need written documentation to justify notifying the legal authorities. -------------------------------------------------------------------------------- Question 3 - 86786 Rolf Lindquist, a CFA charterholder, is a portfolio manager at Midwestern Investment Management, a firm catering to high-net-worth individual clients. Lindquist has worked in the investment industry for 10 years, the first four years with KMGR and the last six with Midwestern. In advertising material, Lindquist reports his investment performance over the last 10 years without identifying the first four years as being achieved at KMGR. Lindquist sits on the board of directors of Western Inns, a hotel chain. In return for his services on the board, he receives free lodging from Western when he travels for business and pleasure. He currently holds no Western stock in any of his clients’ portfolios, although in the recent past some of these portfolios have included Western. Lindquist discusses his Western directorship with his supervisor, but because he does not receive any monetary compensation, he does not formally disclose this arrangement in writing to his employer or his clients. Lindquist manages the portfolio of Martha Olson. Last year, Lindquist beat the benchmark portfolio for Olson by 180 basis points. In return for that performance, Olson gives Lindquist two third-row tickets to the NCAA basketball championship. Lindquist discloses this gift to his supervisor. Lindquist also receives a two-week, expense-paid trip to Paris from Boston and Co., a brokerage firm, in return for providing Boston with business during the year. Lindquist also manages the portfolio of Jerry Chandler, a conservative investor with a low tolerance for risk. Lindquist recommends the purchase of equity index put options on the equity portion of Chandler’s portfolio. Lindquist educates Chandler on the risks and rewards of such a strategy, including the risk that equity prices will increase and that this would cause the value of the put options will fall. Midwestern has developed a proprietary model that has been thoroughly researched and is known throughout the industry as the Midwestern model. The model is purely quantitative and screens stocks into buy, hold, and sell categories. The basic philosophy of the model is thoroughly explained to clients. The director of research frequently alters the model based on rigorous research—an aspect that is disclosed to clients, although the specific alterations are not continually disclosed. Portfolio managers then make specific sector and security holding decisions, purchasing only securities that are indicated as “buys” by the model. Lindquist has conducted some research on his own and feels the model would be improved by adding some factors. Based on his research, he applies his own version of the model, which is occasionally in conflict with the Midwestern model. Lindquist discloses his model to his own clients, but not to his supervisor. Part 1) Regarding the Paris trip, Lindquist: A) cannot accept the gift without disclosing it to his employer. B) cannot accept the gift under any circumstances. C) can accept the gift if he determines, in consultation with his employer, that accepting the gift would not compromise his objectivity. Part 2) With regard to the Chandler portfolio, Lindquist violated: A) Standard III©: Suitability, but not Standard III(A): Loyalty, Prudence, and Care. B) Standard III(A): Loyalty, Prudence, and Care, but not Standard I(D): Misconduct. C) neither Standard III©: Suitability, nor Standard III(A): Loyalty, Prudence, and Care. Part 3) With regard to Lindquist’s seat on the board of Western Inns, he violated: A) no standards. B) Standard VI(A): Disclosure of Conflicts, but not Standard IV(B): Additional Compensation Arrangements. C) Standard VI(A): Disclosure of Conflicts, and Standard IV(B): Additional Compensation Arrangements. Part 4) Which of the following standards is not violated in Lindquist’s version of the Midwestern model? A) Standard I©: Misrepresentation. B) Standard V(A): Diligence and Reasonable Basis. C) Standard IV©: Responsibilities of Supervisors. Part 5) Lindquist’s actions in advertising his investment performance: A) conform to all standards. B) conform to standards concerning performance presentation as long as Lindquist does not claim compliance with CFA Institute Global Investment Performance Standards. C) violate Standard III(D): Performance Presentation. Part 6) Regarding the NCAA tickets, what action must Lindquist take to avoid a violation of Standard IV(B): Additional Compensation Arrangements? A) Disclose his receipt of the tickets to all other clients with the same investment objective as the Olson account. B) None. Lindquist’s actions do not violate Standard IV(B). C) Obtain written consent from all parties involved. -------------------------------------------------------------------------------- Question 4 - 86936 In August 2005, the following events occurred related to Aggregate Opportunities, Inc.: Aug. 8: The Wall Street Journal reported that Aggregate Opportunities had inflated its 2004 earnings due to questionable accounting practices. The story was based on interviews with unnamed sources within Aggregate and its auditor, Millennium Partners. On that day the stock fell 42 percent to $12.50 from $21.55. Aug. 10: At 9 a.m., Aggregate revealed in a conference call to analysts a restatement of earnings for the previous three fiscal years that almost completely erased the reported net income for fiscal years 2002, 2003, and 2004. Aggregate’s chief financial officer personally selected the small group of analysts participating in this call. Company officers said the restatement resulted from questionable accounting practices for off-balance sheet limited partnerships. At 1 p.m., the company issued a news release containing the information provided in the conference call. By the end of the trading day the stock had fallen 74 percent to $3.25. Aug. 11: At 10 a.m., Aggregate’s Chief Financial Officer Buster Lockhart, CFA, publicly announced his resignation, and the Securities and Exchange Commission said it was pursuing an investigation. During July and August of 2005, the following actions were taken: July 20: Michael Cho, CFA, a highly respected analyst with 25 years of experience covering Aggregate’s industry, had spent several days reading Aggregate’s 10-K and 10-Q documents and other analysis published by some of his competitors at major brokerage houses. Based on his reading and conversations with Aggregate management concerning nonmaterial, nonpublic information, Cho concluded that Aggregate had inflated its earnings. On July 20, Cho issued a detailed research report to his clients and concluded that Aggregate should be sold. He subsequently participated in the Aug. 10 conference call, although it only confirmed what he had already detailed in his July research report. Aug. 2: Equity analyst Harold Black, a CFA charterholder, received from his brother information that Aggregate might restate its earnings. Black’s brother is a senior partner at Millennium Partners. Based on this information, Black immediately prepared a new research report that advised his clients to sell Aggregate, but did not liquidate his personal holdings in the company. Aug. 4: Bob Watkins, a CFA Level II candidate and portfolio manager, was golfing at his club. Approaching the third tee, he heard the chief executive officer and chief financial officer of Aggregate discussing company finances. Concealing himself behind a tree, Watkins overheard them discussing the upcoming Wall Street Journal article and the earnings restatement. Based on this conversation, he immediately sold all Aggregate holdings in his clients’ portfolios. Later that day, Watkins told his friend Juan Martinez, CFA, what he learned about Aggregate and how he learned it. Martinez, a subscriber to Cho’s research, then read Cho’s report on Aggregate. Immediately after finishing Cho’s report, Martinez sold the fund’s entire stake in Aggregate. Watkins and Martinez were not participants in the Aug. 10 conference call. Aug. 8: Barb Henderson, a CFA charterholder, read the Wall Street Journal article in the morning and immediately issued a sell recommendation for Aggregate. On Aug. 10, she participated in the conference call and heard the details of the earnings restatement. Aug. 10: Lisa Sanders, CFA, participated in the Aggregate conference call. At 10 a.m., she changed her recommendation on Aggregate from hold to sell and informed all of her clients. At 1 p.m., Sanders sold Aggregate from her personal account. Part 1) In issuing a sell recommendation for Aggregate, Henderson: A) violated none of the Standards. B) violated Standard V(A): Diligence and Reasonable Basis because she lacked sufficient reason to justify the downgrade. C) violated Standard V(B): Communication with Clients and Prospective Clients because she failed to distinguish between fact and opinion. Part 2) In selling his clients’ holdings in Aggregate, Watkins: A) did not violate Standard II(A): Material Nonpublic Information because the information did not involve a tender offer. B) did not violate Standard II(A): Material Nonpublic Information because there was no breach of duty. C) violated Standard II(A): Material Nonpublic Information by taking investment action. Part 3) In advising his clients to sell Aggregate, Black: A) did not violate Standard I(B): Independence and Objectivity, but his supervisor violated Standard IV©: Responsibilities of Supervisors. B) violated Standard V(A): Diligence and Reasonable Basis because he did not have sufficient information to spur investment action. C) violated Standard III(B): Fair Dealing because he did not take his own advice and sell the stock. Part 4) After changing her recommendation on Aggregate, Sanders: A) violated Standard VI(B): Priority of Transactions by trading Aggregate from her own account. B) did not violate Standard II(A): Material Nonpublic Information because the information was disclosed to a select group of analysts. C) violated Standard II(A): Material Nonpublic Information by taking investment action based on information not accessible to the public. Part 5) In selling his fund’s stake in Aggregate, Martinez: A) violated no standards. B) violated Standard III(A): Loyalty, Prudence, and Care by using information obtained from Watkins. C) violated Standard II(A): Material Nonpublic Information by using information obtained from Watkins. Part 6) Which statement about violations of the Code and Standards is TRUE? A) Martinez did not violate the Standard regarding use of material nonpublic information and did not violate the fiduciary-duties standard. B) Henderson violated the reasonable-basis standard, but Sanders did not violate the Standard regarding use of material nonpublic information. C) Aggregate’s CFO violated the fair-dealing Standard, but Black did not violate the fiduciary-duties Standard. -------------------------------------------------------------------------------- Question 5 - 86935 Rajiv Singh, a CFA charterholder, works as an equity analyst with Horizon Investments, a large broker/dealer. After ski-resort developer HighLife misses a quarterly earnings target, Singh changes his recommendation on HighLife from buy to hold. Singh has been following HighLife for years. In several previous research reports on HighLife, Singh told clients that, based on his detailed analysis of the financial statements and market position, he believed HighLife had stopped picking up market share. He had mentioned concerns about HighLife several times in his reports and said in the most recent report that he would downgrade the stock if it missed quarterly earnings. Singh had produced his monthly report on HighLife just a week before the earnings announcement, and because he had just written about his intention to downgrade the stock, he felt he did not need to inform clients of his recommendation change until the next monthly report. On the same day that the HighLife report was released, Singh initiated coverage on another company, the convenience-store operator QuickStop, with a Buy rating. His research report is distributed that afternoon. A client sends Singh a sell order for QuickStop via e-mail the same day the new recommendation is being disseminated to all Singh’s clients and prospects. John Womack, a Level II CFA candidate, is a trader at Horizon. Womack, walking past the conference room during an investment meeting, learns of the initiation of the buy rating on QuickStop. Prior to the dissemination of the buy rating to Horizon’s clients, he buys up a large block of QuickStop shares for Horizon’s account in anticipation of clients’ interest in the stock. When the rating is released to the firm’s customers, he fills the incoming customer orders out of Horizon’s inventory, generating a modest profit for the company. Horizon is drafting trade-allocation guidelines for companywide use. Five regulations the company is considering are listed below: Regular orders are processed and executed on a pro-rata basis. Shares in initial public offerings will be allocated on a pro-rata basis to the firm’s portfolio managers according to advance indications of interest from the managers. When the full amount of a block order is not executed, partially executed orders are allocated on a first-in, first-out basis. Orders must be recorded in writing and stamped with the time of the order and the execution. All clients participating in block trades are give the same execution price, and all clients are charged the same commission. Part 1) When Singh receives the sell order for QuickStop, he should: A) ask the client to delay the order until he sees the new research report. B) process the sell order immediately to fulfill his fiduciary duty to the client. C) tell the client about the buy rating and advise him not to sell the stock. Part 2) Womack’s trading actions are a violation of: A) Standard III(A): Loyalty, Prudence, and Care and Standard VI(B): Priority of Transactions. B) Standard IV(A): Loyalty to Employer and Standard III(B): Fair Dealing. C) Standard III(E): Preservation of Confidentiality and Standard VI(B): Priority of Transactions. Part 3) With regards to his coverage of HighLife stock, Singh: A) violated the research reports Standard because he failed to differentiate between facts and opinions. B) did not violate the Standards for reasonable basis or research reports. C) violated the reasonable-basis Standard by downgrading a stock just because it missed one quarterly earnings estimate. Part 4) After Singh changed his investment recommendation for HighLife from a “buy” to a “hold,” he violated: A) Standard III(B): Fair Dealing by not telling clients about the downgrade of HighLife in the wake of his promise to downgrade the stock if it missed estimates. B) Standard I©: Misrepresentation by not exercising diligence and thoroughness in his research. C) Standard V(A): Loyalty, Prudence, and Care by not exercising reasonable care and prudent judgment in his research. Part 5) Horizon’s proposed IPO-allocation procedures are: A) not a violation of Standard I(B): Independence and Objectivity. B) not a violation of Standard III(B): Fair Dealing if they are disclosed to all clients and prospects. C) a violation of Standard: Loyalty, Prudence, and Care and Standard VI(B): Priority of Transactions. Part 6) Which of the following trade allocation procedures being considered for Horizon’s trade allocation policy would NOT be consistent with Standard III(B), Fair Dealing? A) All clients participating in block trades are give the same execution price, and all clients are charged the same commission. B) Regular orders are processed and executed on a pro-rata basis. C) When the full amount of a block order is not executed, partially executed orders are allocated on a first-in, first-out basis. -------------------------------------------------------------------------------- Question 6 - 86974 Greg Hartsburg, a CFA charterholder, is a leading health-care industry analyst for Reynolds and Co., a New York-based brokerage firm. He has ten years of industry experience and has appeared on the Wall Street Journal’s roster of all-star analysts for four straight years. Hartsburg initiates coverage on Northern Lights Medical Equipment, a Minnesota-based company that designs medical equipment. Hartsburg owns shares of Northern Lights in his personal trading account, a stake of which his company is aware. Maria Voltaire, a junior analyst, has asked the senior analyst to help her prepare for the 2009 Level III CFA exam. He makes himself available to answer her questions on specific topics during the course of her study and gives her two days off, with pay, to study during the week before the exam. He also discusses with her in detail his recollection of the topical areas covered on the 2007 Level III exam, which he took and passed. One of Reynolds’ traders tells Hartsburg that he believes Voltaire is trading in her own account based on information she gathers from research reports written by analysts in the office before the reports are publicly released. Hartsburg attends an analysts’ conference in Toronto. At dinner he is seated close to a table that includes a number of leading analysts in the health-care industry. Hartsburg overhears parts of the conversation, in which the group discusses new trends in the health-care industry as a result of the changing political climate in Washington. The consensus at the table is that trends in the industry are favorable over the next four or five years. Hartsburg has been in the process of preparing his own detailed industry analysis in which he reaches similar conclusions. The conversation he overhears confirms his own analysis, though one of the analysts, Phil Houston, makes some points about competition in the medical-device area that Hartsburg had not considered. On the plane home that evening, Hartsburg rereads the financial statements of two companies he covers, then concludes that Houston’s points about competition are telling. When he returns home, Hartsburg completes his industry report. In the report he wants to use Houston’s ideas. But Houston works for a rival firm, and as a matter of policy, Reynolds does not refer to rival companies in its reports. So Hartsburg pulls some numbers from 10-K reports for context, starts with Houston’s premise, and makes a similar point in his own words. Hartsburg is planning to leave Reynolds at the end of the month to take a position as a portfolio manager at Lone Pine Investments. He has disclosed to Reynolds, in the form of an e-mail message to his supervisor, his intention to take with him to his new position a fundamental factor model that he developed before coming to Reynolds and further refined during his time at Reynolds. He also discloses plans to take with him three sample client investment policy statements (with the client names eliminated) to use as templates in the development of policy statements for his new clients at Lone Pine. In the e-mail to his supervisor, Hartsburg promises he will not solicit the business of these three clients. Reynolds hires an outside firm to create a company website. Hartsburg is featured in promotional materials touting the firm’s performance. The material reads, in part, “Greg Hartsburg is a Chartered Financial Analyst (CFA) with 10 years of experience in the investment industry. He has appeared on the Wall Street Journal’s roster of all-star analysts for four years in a row.” Part 1) With respect to the allegation that Voltaire is front-running research recommendations, Hartsburg’s first priority, under CFA Institute Standard IV© concerning supervisory responsibilities, should be to: A) report the situation to his supervisor. B) freeze Voltaire’s trading account and begin documenting her conduct as a precursor to possible termination. C) promptly initiate an investigation. Part 2) Regarding Hartsburg’s report on the health-care industry, his actions: A) fail to conform to Standard II(A) concerning the use of nonpublic information; and conform to Standard V(A) concerning diligence and reasonable basis. B) conform to Standard I© concerning misrepresentation; and conform to Standard II(A) concerning the use of nonpublic information. C) fail to conform to Standard I© concerning misrepresentation; but conform to Standard V(A) concerning diligence and reasonable basis. Part 3) Which statement about Hartsburg’s actions prior to his leaving Reynolds is most accurate? His actions regarding the factor model: A) do not conform to Standard IV(A): Loyalty to Employer, nor do his actions regarding the investment-policy statements. B) conform to Standard IV(A): Loyalty to Employer, as do his actions regarding the investment-policy statements. C) do not conform to Standard IV(A): Loyalty to Employer, but his actions regarding the investment-policy statements do. Part 4) In order to conform to the Code and Standards with relation to Northern Lights stock, Hartsburg should: A) ask the company to assign another analyst to cover the stock in an effort to avoid the conflict of interest. B) sell the shares before issuing the report. C) not disclose his holdings if company policy calls for a generic disclaimer about analyst stock ownership. Part 5) Reynolds’ promotional material conforms to: A) Standard I© regarding misrepresentation, but not Standard III(D) concerning performance presentation. B) Standard I© regarding misrepresentation and Standard III(D) concerning performance presentation, but violates at least one other standard. C) all Standards. Part 6) Hartsburg’s efforts to help Voltaire pass the CFA exam: A) violate both Standard I(D): Misconduct and Standard VII(A): Conduct as Members and Candidates in the CFA Program. B) conform to all relevant standards. C) conform to Standard I(D): Misconduct, but violate Standard VII(A): Conduct as Members and Candidates in the CFA Program.
1st one- B Part 1) A Part 2) B Part 3) A (b? I’m going w/ A b/c the bahamas seem a bit excessive to learn how to better run your advisory biz) Part 4) B Part 5) B Part 6) C I have a feeling these could get ugly- I’m pretty ethically challenged. Next item set. These are not short, might take a while.
I’ll wait for a few responses. Once I submit answers to qbank, I can’t click back or it gets f’ed up. I need to do these myself, but I’m a bit busy till lunch.
2nd vignette- Part 1) C Part 2) C Part 3) C Part 4) B Part 5) A Part 6) A getting sleeeeeeepy
Part 1) B Part 2) C (if this is a suitability violation b/c options are “risky” regardless and this guy is conservative, i’m going to be pissed- they’re long puts, the downside is limited and it’s hedging the longs) Part 3) C Part 4) B Part 5) C Part 6) C looks like it’s just you and i here ditch. i think the volume of this might’ve frightened folks. technically you get what, 18 min per item set? so 6 sets = a lot of off work time! i’m doing these somewhat quickly, hopefully not making stupid mistakes. i might take a break soon though.
I printed it out. I’ll complete it at lunch and present the answers. But yes, this is ~20-30 min of work easily!
not yet reached the ethical world… so not contributing today… sorry
I am a very unethical person so I am out of this Lunch Crunch. Ask me about Golden Parachutes, Agency Costs, compensation committees and how to handpick them, how to have the same person chairing the board and have him as the CEO of the firm, Conflicts of Interests, Soft Dollars for buying Cuban cigars, How to maintain a monopoly and always have MB>MC, How to write a non-transportable IPS and confirm our job seats, How to plagiarize, how to have a ponzi-scheme template and put it up on the company intranet below the link to the Std of professional conduct and code of ethics, insider info sharing and the list continues…
Section 4- Part 1) B Part 2) C Part 3) B Part 4) C Part 5) C- the non-public info led him to Cho which was legit… i dunno… it feels sketchy that it was the non-public info that pretty much got him to sell it even if a legit report was read afterwards. if it’s A, you could almost justify it but it’s sketchy enough that i say violation! Part 6) leaning towards C here- the CFO def violated fair dealing. black was also in violation, but i wouldn’t say the fiduciary duties standard- more like non-public info. ditch this is MASSIVE- just you and me kid, you and me.
This was BRUTAL ETHICS 
My brain feels violated:) Here I go (thanks bannisja for answer template): First stand alone question: B 1st vignette Part 1) B Part 2) B Part 3) A Part 4) C Part 5) B Part 6) C 2nd vignette Part 1) C Part 2) C Part 3) C Part 4) B Part 5) A Part 6) C 3rd vignette Part 1) A Part 2) B Part 3) C Part 4) B Part 5) C Part 6) C 4th vignette Part 1) A Part 2) C Part 3) B Part 4) C Part 5) A Part 6) A 5th vignette Part 1) C Part 2) A Part 3) B Part 4) A Part 5) A Part 6) B 6th vignette Part 1) C Part 2) C Part 3) A Part 4) A Part 5) B Part 6) C
5th one Part 1) C Part 2) A Part 3) C Part 4) A Part 5) A? or C. I don’t see where independence and objectivity were violated so i’m going with the lesser of 2 evils here? Part 6) C- could be wrong but i don’t think FIFO is a legit way to allocate
6th one- i’m officially exhausted. Will review them this afternoon. Part 1) oh F i never can remember these. i dunno, A? note to self- review what to do when you find someone at your firm w/ a voilation bc I always screw these up. Part 2) A Part 3) A Part 4) C Part 5) B Part 6) B- can’t discuss specific questions but topics ok (i hope or i’m in bigtime violation all over this board!)
ditch, you crazy man
TheAliMan Wrote: ------------------------------------------------------- > ditch, you crazy man Strangly, I get that often off the boards too. I don’t mind the label, I’ve been called worse.
Holy crap - that took forever! Stand alone question 1 - B 1 - 1 A 2 B 3 A 4 C 5 B 6 C 2 - 1 C 2 C 3 C 4 B 5 A 6 A 3- 1 B 2 A 3 C 4 B 5 C 6 C 4 - 1 B 2 C 3 B 4 C 5 A 6 A 5 1 C 2 A 3 B 4 A 5 A 6 C 6 1 A 2 C 3 A 4 A 5 B 6 C
My picks - Wow am I disappointed!!! Points Possible: 36 Points Correct: 24 Score: 67% 1 - 1 A wrong 2 B 3 A 4 a wrong 5 B 6 a 2 - 1 C 2 C 3 C wrong 4 B 5 A 6 A 3- 1 B 2 c 3 C 4 c wrong 5 C 6 C 4 - 1 B wrong 2 C 3 B wrong 4 C 5 c 6 c 5 1 C 2 A 3 B 4 A 5 c wrong 6 C wrong 6 1 c 2 C wrong 3 b wrong 4 A wrong 5 B 6 a wrong Not the happy hour I thought I’d get on a Friday… Hash out the wrong ones, I need to get working.