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While servicing his clients’ accounts, an analyst who is a CFA charterholder, determines that one client is probably involved in illegal activities. According to Standard III(E), Preservation of Confidentiality, the analyst may NOT do which of the following?

A) There are no exceptions in this list.

B) Contact CFA Institute about the determination.

C) Contact the appropriate governmental authorities about the determination.

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Standard III(E) allows an analyst to reveal information about a client to CFA Institute since CFA Institute will keep the information confidential. If the analyst is reasonably certain a law has been violated, an analyst may have an obligation to report the activities to the appropriate authorities. Therefore, neither of the listed actions are exceptions from the analyst’s options.

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Standard III(E), Preservation of Confidentiality, applies to the information that an analyst learns from:

A) current clients and prospects only.

B) current clients and former clients only.

C) current clients, former clients, and prospects.

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According to Standard III(E), Preservation of Confidentiality, an analyst must preserve the confidentiality of information communicated by clients, former clients, and prospects.

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Greg Stiles, CFA, may withhold from CFA Institute information about a client acquired in the regular performance of his duties:

A) for neither of the reasons listed.

B) only if Stiles is a relative of the client.

C) only if Stiles has a special confidentiality agreement with the client.

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According to Standard III(E), Preservation of Confidentiality, Stiles may not withhold information under any of the listed reasons. The reason is that CFA Institute will keep the information confidential.

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Greg Stiles, CFA, CAIA, has recently liquidated most of a client’s portfolio because the client is planning to buy a house. Stiles informs one of the brokers in his office who has his real estate license about the plans of his client. With respect to Standard III(E), Preservation of Confidentiality, this action:

A) violates the Standard unless the client asks Stiles to tell the licensed salesman.

B) is appropriate since Stiles keeps the information in the firm.

C) is appropriate since Stiles only tells a licensed salesman.

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According to Standard III(E), Preservation of Confidentiality, Stiles must keep client information confidential and limit the information to those people directly related to servicing the client. Merely working in the same firm does not qualify a person for learning about the client of a fellow analyst.

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Nicholas Brynne, CFA, develops a trading model while working for CE Jones, an investment management firm. By working on the model at home from his personal computer, Brynne is able to devote additional work hours. Although the trading model is successful, Brynne losses his job in a company restructuring, and decides to start his own practice using the trading model. Nicholas is most likely:

A) in violation of the Standards because he did not receive permission from his employer to keep or use the files after employment ended.

B) not in violation of the Standards because the trading model was created using his home computer.

C) in violation of the Standards because he did not have permission to build the trading model using his home computer.

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Brynne is in violation of Standard IV(A) "Loyalty." Employer records include items stored in any medium including home computers.

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Nancy Korthauer, CFA, has launched a new hedge fund called the Korthauer Tautology Fund but has had trouble hiring analysts who are CFA charterholders as well as with finding clients. She offers a $15,000 incentive bonus to any charterholder who joins the firm with over $1 million in committed client investments. Which of the following interpretations of the Code and Standards is most accurate?

A) A member or candidate may arrange for current clients to switch to the Korthauer Tautology Fund provided the member or candidate refuses to accept the incentive bonus.

B) A member or candidate may arrange for current clients to switch to the Korthauer Tautology Fund provided clients are informed of the incentive bonus.

C) A member or candidate may not solicit current clients away from their current employer.

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A member or candidate may not solicit current clients away from their current employer under Standard IV(A) "Loyalty."

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May Frost, CFA, is an equity research analyst for a "precious metals mining" exchange traded fund which has recently started significantly outperforming its benchmark after several years of stagnation. Upon investigating the source of the outperformance, Frost learns that the fund has experienced severe style drift, and now has a significant proportion of its resources invested in technology and Internet stocks. Frost reviews the fund’s prospectus and learns the current sector weighting violates multiple prospectus covenants. Frost contacts her supervisor and the fund’s compliance department and is told the portfolio weighting is not her responsibility and that she should not pursue the matter further. Frost reviews the firm’s whistleblower policy, contacts personal legal counsel, and then contacts regulatory authorities regarding the style drift and prospectus violations. Frost is most likely:

A) not in violation of the Code and Standards.

B) in violation of Standard IV(A) "Loyalty."

C) in violation of Standard III(E) "Preservation of Confidentiality."

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Standard IV(A) "Loyalty" does not necessarily prohibit Frost from whistleblowing actions. Frost has properly contacted her supervisor and the compliance department, and has reviewed her firm’s whistleblower policy.

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Dave Kline, CFA, is a personal investment advisor. After a dispute with a coworker on margin policy, he formally resigns his position by giving suitable notice. However, he does not follow his firm’s established "Transition and Exit Policies" regarding discussion of the reason for his departure. During his final two weeks of employment, Kline routinely discusses the margin policy dispute, stating "...anyone who would lend that much money on securities of such low quality does not belong in this business..." Kline’s statements are in direct violation of the firm’s "Transition and Exit Policies," but he considers it a free-speech issue. Kline is most likely:

A) in violation of Standard IV(A) "Loyalty" recommended procedures for failing to notify regulators of the dangerous margin policy.

B) not in violation of the Code and Standards.

C) in violation of Standard IV(A) "Loyalty" recommended procedures for failing to follow the employer’s policies and procedures related to termination policy.

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Kline is in violation of Standard IV(A) "Loyalty" recommended procedures for failing to follow the employer’s policies and procedures related to termination policy. Members and candidates should understand and follow their employer’s policies and operating procedures. Also, members and candidates planning to leave their current employer must continue to act in the employer’s best interest.

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May Frost, CFA, is concerned about the comments and activities of several of her coworkers and feels both ethical and legal violations are routinely overlooked. According to the Code and Standards, a recommended first step would least likely be to:

A) provide her supervisor with a copy of the Code and Standards.

B) review the company’s policies and procedures for reporting ethical violations.

C) contact industry regulators.

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See Standard IV(A) "Loyalty." Frost should begin by reviewing the company’s policies and procedures for reporting ethical violations and provide her supervisor with a copy of the Code and Standards to highlight the high level of ethical conduct she is required to follow.

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Dave Kline, CFA, is a personal investment advisor with 200 individual, family, and corporate accounts. After a dispute with a coworker on margin policy, he formally resigns his position by giving suitable notice. However, he does not follow his firm’s established "Transition and Exit Policies" regarding his accounts. The firm’s stated policies require him to notify each client of his planned departure and personally introduce them to their new account representative, Greg Potter. Kline sees Potter as a rival and states "...let Potter do his own work and find his own clients." Kline is most likely:

A) in violation of Standard I(D) "Misconduct" for leaving clients subject to an account representative he does not find suitable.

B) not in violation of the Code and Standards.

C) in violation of Standard IV(A) "Loyalty" for failing to follow the employer’s policies and procedures related to notifying clients of his departure.

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Kline is in violation of Standard IV(A) "Loyalty" for failing to follow the employer’s policies and procedures related to notifying clients of his departure.