Tucson Financial Advisors (TFA) has determined that it needs to have the ability to conduct in-house research to support its other activities. To this end, TFA has recently hired Alba Hernandez, a CFA charterholder in good standing, as an investment analyst. Hernandez becomes the first full-time employee of TFA to have the CFA designation. When she is hired, her supervisor tells her that TFA is familiar with the CFA Institute Code and Standards, but that the company does not feel that they are important. TFA is a well-respected firm with a reputation for integrity that predates the CFA program. TFA tells her that they do not plan to use Hernandezs affiliation with CFA Institute in any of their literature or advertisements. Prior to her employment with TFA, Hernandez was an independent contractor, providing financial advice for a fee to private clients. She continues to do so but has informed these clients not to reveal this fact to TFA. Some of her private clients would be considered viable prospects by TFA, while others would not meet TFA's $1 million net worth criterion. Hernandez routinely uses TFAs data and other research materials in servicing her private clients. Throughout the year, Hernandez holds a "quarterly investment forum" under the guidance of TFA. Prospects find out about the meetings via private mailings from TFA, which Hernandez supervises. In composing the mailing list, Hernandez is aware that many of the clients do not meet TFAs $1 million net worth criterion. After each forum, Hernandez often contacts those attendees that do not meet TFAs criterion, and she solicits them to become clients in her private practice. ChemMex is a large conglomerate headquartered in Monterrey, Mexico. At present, ChemMex is planning an IPO in the U.S. TFA is seeking the mandate for the IPO, and has asked Hernandez to meet with management to present a proposal. Hernandez's uncle, Hector Lopez, is CFO and treasurer of ChemMex. In recent years, Lopez has given ChemMex securities to his nieces and nephews as Christmas gifts. TFA is not aware of Hernandez's financial interests and personal connections with ChemMex. Hernandez is putting together a research report on CoppOre, a firm that mines copper in a developing country. She obtains insider information that states a rival firm in that country will soon make a tender offer for CoppOre. Hernandez knows the laws in that country very well and knows that trading on inside information is not illegal there. Hernandez plans to write the research report exaggerating the facts on positive points in order to encourage her clients to purchase shares in CoppOre, but she does not plan to explicitly say that CoppOre will soon be bought out in a tender offer. In doing so, the clients will be encouraged to buy CoppOre stock while not knowing about the tender offer. Hernandez feels that this is part of her fiduciary duty and explains her plan to TFA management. The managers of TFA tell her to do what she thinks is in the best interest of the clients. Concerning her private clients, Hernandez: A) | must obtain written consent from TFA to continue the relationship. |
| | B) | must discontinue her independent practice. |
| | C) | need not obtain consent since the arrangements were initiated prior to her employment. |
| | D) | must obtain written consent from TFA only if the private practice was not disclosed orally during the hiring process. |
|
Answer and Explanation
Even though the relationships with Hernandez's private clients predate her employment with TFA, she is obligated to obtain written consent from TFA to continue with the activities. Moreover, she needs written consent from her private clients as well. Standard IV(A) Loyalty to Employer, and Standard IV(B) Additional Compensation Agreements.
With respect to the prospects she invites to the quarterly investment forum and then solicits for her private practice, Hernandez is: | A) | not in violation of any Code or Standard. |
| B) | in violation of Standard I(D) concerning professional misconduct. |
| | C) | in violation Standard VI(A) concerning disclosure of conflicts. |
| | D) | in violation Standard III(C) concerning knowing your client. |
|
Answer and Explanation
Standard I(D) states that members shall not engage in any professional conduct involving dishonesty, fraud, or deceit Hernandez is being dishonest by using a TFA mailing to bring in prospects that she knows cannot become TFA clients with the apparent intent of soliciting them for her own private business. Note that Standard VI(A) deals with disclosing conflicts of interest that would impair the members ability to make unbiased and objective recommendations, such as serving on a board or having a beneficial interest in a security. Standard III(C) states that a member must inquire as to a clients financial situation and consider the appropriateness of investment recommendations for each client. Because there are no specific recommendations being given, Standard III(C) does not apply here.
With respect to the proposal for the IPO mandate of ChemMex, Hernandez: A) | may meet with ChemMex officials and be involved with the IPO, as long as she discloses the material facts of the situation to TFA. |
| | B) | is not allowed to meet with ChemMex officials. |
| | C) | may meet with ChemMex officials, but cannot be otherwise involved with the IPO. |
| | D) | may meet with ChemMex officials and be involved with the IPO and need not provide disclosure if not required to do so under Mexican law. |
|
Answer and Explanation
Hernandez would be allowed to meet with ChemMex and to be involved with the IPO so long as she discloses the material facts to TFA. Once in possession of these facts, TFA is in position to determine if the conflicts of interest are such that they should preclude Hernandez's participation in the project. Standard VI(A), Disclosure of Conflicts.
With respect to the recommendation that Hernandez writes for CoppOre, Hernandez may: | A) | proceed with the recommendation as long as she does not exaggerate facts and mention the tender offer, but does not have to make an effort to achieve public dissemination of the tender offer. |
| | B) | proceed with the recommendation as planned. |
| C) | not proceed with the recommendation with either the exaggerated information or the information of the tender offer. |
| | D) | proceed with the recommendation as long as she does not exaggerate facts and mention the tender offer, but must make an effort to achieve public dissemination of the tender offer. |
|
Answer and Explanation
Exaggerating facts is a violation of Standard V(A) Diligence and Reasonable Basis. Mentioning the tender offer, or causing others to trade in a security involved with a tender offer is a violation of Standard II(A): Material Nonpublic Information. According to Standard II(A), in no instance may a member trade or cause other to trade in a security while a member possesses material nonpublic information . The fact that the home country does not make trading on information concerning a tender offer a crime does not allow Hernandez to use it because Standard II(A) prohibits it. Remember that the member must go along with either the home country laws or the Code and Standards, whichever is stricter.
All of the following are violations of the Code and Standards EXCEPT:
| A) | Hernandez using TFA data and research for her private practice. |
| | B) | Hernandez not informing TFA of her private practice and getting written permission for it. |
| | C) | TFA management not taking action concerning Hernandezs plans in writing the CoppOre report. |
| D) | TFAs management not making any special effort to include Hernandezs holding the CFA designation in their literature and advertisements. |
|
Answer and Explanation
Using the CFA designation is a privilege and is not mandatory. TFA has not prohibited Hernandez from using it, they simply have said that they will not make an effort to use it, which may actually be in compliance with the Standards in that they avoid any undignified use of the designation. The other three choices are clear violations. Hernandez cannot use the property, i.e., the data and research, of TFA. She needs written permission to continue her private practice. TFA is required to supervise Hernandez, and they are not fulfilling this responsibility by allowing her to proceed with her plans to write the CoppOre report.
Upon her arrival at TFA, as a CFA charterholder, Hernandez: | A) | is only required to deliver a copy of the Code and Standards to her employer because she has been told that they already abide by the Code and Standards. |
| B) | is not required to deliver a copy of the Code and Standards to her employer. |
| | C) | is required to deliver a copy of the Code and Standards to her employer and provide them with written notification of her obligation to comply. |
| | D) | is only required to provide her employer with written notification of her obligation to comply because she has been told her supervisors are aware of the Code and Standards. |
|
Answer and Explanation
There is no longer a requirement to provide an employer with a copy of the Code and Standards.
| 
发表于 2008-9-16 11:39
|