kmf229

Joan Platt, CFA, operates an investment advisory service in New York but maintains an office in Xania. Xania recently established a stock market, which is not very efficient. None of the Xanian stocks trade in the U.S. market. Xania legally permits the use of material inside information. Platt believes that using inside information would help her compete against other Xanian investment advisors and also help some of her Xanian clients reach their investment objectives. Platt is considering adopting local investment practices in Xania. According to CFA Institute Standards of Professional Conduct, Platt may:

A) use material inside information because Xania legally permits this practice.

B) not use material inside information.

C) use material inside information, but only after notifying CFA Institute.

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Because applicable law involving material inside information is less strict than the Code and Standards, Platt must adhere to the Code and Standards. Standard II(A) prohibits against use of material nonpublic information.

kmf229

Which of the following statements about the CFA Institute Code and Standards is most accurate? The Code and Standards:

A) require members to persuade the perpetrator to cease illegal activities.

B) do not require that members report legal violations to the appropriate governmental or regulatory organization.

C) prohibit members from accepting gifts that create a conflict with their employer's interest.

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The Code and Standards do not require members to report violations to legal authorities, but such disclosure may be prudent or required in certain circumstances. They do not require members to quit their jobs or to persuade violators to cease illegal activities. They do require that members report the activities to the appropriate person(s) in their own firm and disassociate themselves from the illegal actions. Members must obtain written permission to accept gifts that create a conflict with their employer's interest.

kmf229

Robe Advisory Services operates an office in San Francisco, where it manages portfolios for its clients based in the United States. The firm also maintains an office in Tokyo, where it employs Sam Lee, CFA who researches Japanese stocks. According to the CFA Institute Standards of Professional Conduct, Lee is required to maintain knowledge of and comply with all applicable laws, rules, and regulations in:

A) both the U.S. and Japan and the CFA Institute Standards of Professional Conduct.

B) both the U.S. and Japan, but not the CFA Institute Standards of Professional Conduct.

C) Japan, but not the U.S., and the CFA Institute Standards of Professional Conduct.

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To abide by the Standards, employees who work for foreign-based firms are required to apply the stricter of the foreign (here, U.S.) law, the domestic (here, Japanese) law, or CFA Institute standards.

kmf229

Which of the following is a CORRECT statement of a member's duty under the Code and Standards?

A) A member who trades securities in a country with less strict laws, rules, regulations, or customs may follow those laws if he discloses this information to his client.

B) In the absence of specific applicable law or other regulatory requirements, the Code and Standards govern the member's actions.

C) A member is required to comply only with applicable local laws, rules, regulations, or customs even though the CFA Institute code and Standards may impose a higher degree of responsibility or a higher duty on the member.

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Members are always, at a minimum, subject to the Code and Standards.

HuskyGrad2010

Mega Securities, a multinational investment advisor based in the United States, employs the following analysts who practice in multiple jurisdictions.

• Melissa Black, CFA, resides in Country N, which has no securities laws or regulations, but does business in Country L, which has securities laws and regulations that are less strict than the Code and Standards.
• Tom White, a CFA Institute member, resides in Country L, but does business in Country S, which has securities laws and regulations that are stricter than the Code and Standards.

According to the CFA Institute Code and Standards, which of the following statements about Black and White is CORRECT?

Black must adhere to the

White must adhere to the

A) law of Country L law of Country S

B) Code and Standards law of Country S

C) law of Country N law of Country L

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Because the applicable law in Country L is less strict than the Code and Standards, Black must adhere to the Code and Standards. Because the applicable law is stricter than the Code and Standards, White must adhere to the more strict applicable law of Country S.

HuskyGrad2010

Mega Securities, a multinational investment advisor based in the United States, employs the following analysts who practice in multiple jurisdictions.

• Melissa Black, CFA, resides in Country N, which has no securities laws or regulations, but does business in Country L, which has securities laws and regulations that are less strict than the Code and Standards.
• Tom White, a CFA Institute member, resides in Country L, but does business in Country S, which has securities laws and regulations that are stricter than the Code and Standards.

According to the CFA Institute Code and Standards, which of the following statements about Black and White is CORRECT?

Black must adhere to the

White must adhere to the

A) law of Country L law of Country S

B) Code and Standards law of Country S

C) law of Country N law of Country L

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Because the applicable law in Country L is less strict than the Code and Standards, Black must adhere to the Code and Standards. Because the applicable law is stricter than the Code and Standards, White must adhere to the more strict applicable law of Country S.

HuskyGrad2010

Shortly after becoming employed by Valco & Co., an investment banking firm, Stan McDowell, CFA, learns that most of Valco's initial public offerings (IPO) are really effected in order to profit management via price manipulation of the shares. McDowell observes an illegal act, sanctioned by senior management, in progress and refuses to sign off on his responsibility. Instead, McDowell takes the documentation to his supervisor and tells him he should sign it in his place. This action is:

A) a violation of the Code and Standards since he is required not to knowingly participate or assist in such an act.

B) an overreaction. Senior management's sanctioning of the act absolves McDowell from his ordinary responsibility as a CFA Institute member.

C) a suitable reaction, and he is in compliance with the Code and Standards.

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McDowell, by his action in taking the documentation to his supervisor, is knowingly participating in and/or assisting in an illegal act. This is clearly prohibited under Standard I(A), and he is in violation of the Standard.

HuskyGrad2010

If an analyst suspects a client or a colleague of planning or engaging in ongoing illegal activities, which of the statements about the actions that the analyst should take is most correct? According to the CFA Institute Standards of Professional Conduct, the analyst should:

A) consult counsel to determine the legality of the activity and disassociate from any illegal or unethical activity if the member has reasonable grounds to believe that the activity is illegal or unethical.

B) disassociate from any illegal or unethical activity if the member has reasonable grounds to believe that the activity is illegal or unethical.

C) consult counsel to determine the legality of the activity.

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According to the procedures for compliance involving Standard I(A), CFA Institute members should determine legality and disassociate from any illegal or unethical activity.

HuskyGrad2010

The Standards of Professional Conduct explicitly outlines responsibilities to four groups. Which of the following is NOT a group mentioned in that list?

A) The investing public.

B) The profession.

C) The Federal Reserve.

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The Standards explicitly mention responsibilities to the profession, employers, clients, prospects, and the investing public. The Federal Reserve is not mentioned.

HuskyGrad2010

Maria Valdes, CFA, is an analyst for Venture Investments in the country of Newamerica, which has laws prohibiting the acceptance of any gift from a vendor if the gift exceeds US $250. Valdes has evidence that her Venture Investments colleague, Ernesto Martinez, CFA, has been receiving gifts from vendors in excess of US $250.Valdes is obligated to:

A) disassociate herself from the activity, and urge Venture to persuade Martinez to cease the activity.

B) disassociate herself from the activity, urge Venture to persuade Martinez to cease the activity, and inform CFA Institute of the violation.

C) disassociate herself from the activity, urge Venture to persuade Martinez to cease the activity, and inform CFA Institute and regulatory authorities of the violation.

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Standard I(A), Knowledge of the Law requires members who have knowledge of colleagues engaging in illegal activities to disassociate from the activity and urge their firms to persuade the individual to cease such activity. Reporting to regulatory authorities may be prudent in certain circumstances, but is not required. Reporting to CFA Institute is not required.