- Scott Marsh is a research analyst for a brokerage firm following the computer industry. Joe Perry is Marsh’s former college roommate and is the head of technology for Mercury, a large software company. Perry informs Marsh on Tuesday that in two days the company will be making an official announcement that its release of its newest version of its software will be moved up one month, from October 1 to September 1. The announcement will be surprising to the industry and will likely be met with skepticism because the company has had trouble meeting release dates in the past. Perry assures Marsh that he is certain that they will meet the September 1 date. Marsh considers 2) Perry to be very honest and highly competent. Marsh should: A) immediately put out a report recommending the stock, but waiting until the official announcement to state his reasons. B) produce his research report in two days based solely on the official announcement, not taking into consideration the information from Perry. C) wait until the public announcement is made, then release a report explaining that he believes the company will make the release date, disclosing that one of the reasons for his opinion is Perry is a friend of his. 2) Gordon McKinney, CFA, works in the trust department of a bank. The bank’s trust account holds a large block of a particular company. McKinney learns that this company is going to buy back one million shares at a 15% premium to the market price on a first-come-first-served basis. McKinney immediately tells his mother-in-law to tender her shares but waits until the end of the day to tender the trust’s shares. McKinney has most likely violated: A) Standard VI(B), Priority of Transactions. B) Standard IV(A), Loyalty to Employer. C) Standard II(A), Material Nonpublic Information. 3) Patricia Hoolihan is an individual investment advisor who uses mutual funds for her clients. She typically chooses funds from a list of 40 funds that she has thoroughly researched. The Burns, a married couple that are a client, asked her to consider the Hawkeye fund for their portfolio. Hoolihan had not previously considered the fund because when she first conducted her research three years ago, Hawkeye was too small to be considered. However, the fund has now grown in value, and cursory research uncovers no fundamental flaws with the fund. She puts the fund in the Burns’ portfolio but not in any of her other clients’ portfolios. The fund ends up being the best performing fund on her list. Hoolihan has: A) violated the Standards by not dealing fairly with clients. B) violated the Standards by not having a reasonable and adequate basis for making the recommendation. C) not violated the Standards. 4) A money manager is meeting with a prospect. She gives the client a list of stocks and says, “These are the winners I picked this past year for my clients. Their double-digit returns indicate the type of returns I can earn for you.” The list includes stocks the manager had picked for her clients, and each stock has listed with it an accurately measured return that exceeds 10%. Is this a violation of Standard III(D), Performance Presentation? A) Yes, unless the positions listed constitute a complete presentation (i.e., there were no stocks omitted that did not perform in the double digits). B) No, because the manager had the historical information in writing. C) Yes, because the manager cannot reveal historical returns of recent stock picks. 5) Andrew Mader, CFA, is an analyst with Metro Investment Services. During lunch with some of Metro’s managers, Mader is told, "There are going to be major problems at Gebco (a firm that Metro had brought public last year). I was just over there and the place is just crawling with government inspectors.” Mader had just issued a report with a “buy” recommendation on Gebco last week. Mader should: A) immediately issue a new report, but only after stopping by Gebco himself to corroborate the story. B) not do anything because to do so would violate his obligation to preserve confidentiality. C) not do anything to avoid a violation of fair dealing. 6) Bill Fox, CFA, has been preparing a research report on New London Wire and Cable, one of his major investment clients. He had completed much of his analysis and had planned on having his report typed and bound today. Unfortunately, his briefcase was stolen while he ate breakfast, and he lost all his notes and working papers. The lost materials included his notes from management interviews, conversations with suppliers and competitors, dates of company visits, and his computer diskette containing much of his quantitative analysis. Fox’s client needs this report tomorrow. In a panic, Fox called New London’s vice president of finance and was faxed a copy of the company’s most recent financial projections. Fox remembered that his own analysis showed that management’s estimates were too high. He did not remember the exact amount, so he revised New London’s figures downward 10%. Fox also incorporated some charts and graphs on New London from a research report he had received last week from a small regional research firm and used some information from a Standard & Poor’s reference work. With the help of his secretary, a Xerox machine, and some creative word processing, Fox got the report done in time for the evening Fedex pick up. On the way home from the office that night, Fox wondered if he had violated any CFA Institute Standards of Professional Conduct. Fox has: A) violated the requirement to have a reasonable basis for a recommendation, the prohibition against plagiarism, and the requirement to maintain appropriate records. B) violated none of the Standards. C) violated the requirement to have a reasonable basis for a recommendation and the prohibition against plagiarism.
b c c a b c
C C C A B C
b a c a a c
C A C A B C
B C C A B C but I’m not very comfortable with them. Post explanations with answers?
b b a a b c
Correct Answers: C A B A B C
Hey damil could you post the reasoning behind #2 i thought for sure he was acting upon material non public information due to the fact that he works in the trust department.
^ I chose option C as well, but I was wrong. Gordon McKinney, CFA, works in the trust department of a bank. The bank’s trust account holds a large block of a particular company. McKinney learns that this company is going to buy back one million shares at a 15% premium to the market price on a first-come-first-served basis. McKinney immediately tells his mother-in-law to tender her shares but waits until the end of the day to tender the trust’s shares. McKinney has most likely violated: A) Standard VI(B), Priority of Transactions. B) Standard IV(A), Loyalty to Employer. C) Standard II(A), Material Nonpublic Information. ----------------------------- Reasoning: Standard VI(B), Priority of Transactions, applies. If an analyst decides to make a recommendation about the purchase or sale of a security, he must give his customers or employer adequate opportunity to act on this recommendation before acting on his own behalf. Personal transactions include those made for the member’s own account and family accounts. Here, McKinney violated Standard VI(B) by acting on his mother-in-law’s behalf and then waiting until the end of the day to act on his employer’s behalf. Explanations for other responses: Standard IV(A), Loyalty to Employer, does not apply. This standard concerns a member competing with his/her employer (independent practice), for example a member who engages in outside consulting. Standard II(A), Material Nonpublic Information, does not apply. The question does not indicate that the information is not public.
…or integrity of capital markets? And shouldn’t #1,C be wrong for “reasonable and adequate basis”