ShooterMcCFA

A CFA charterholder gathers the closing prices of a security from a widely read publication. The charterholder uses the data as part of a report she is preparing and fails to report the data source in the report. This is:

A) not a violation of Standard I(C) if the data can be gathered from several public sources.

B) a violation of Standard I(C).

C) not a violation of Standard I(C) if the data cannot be gathered from several public sources.

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Since the security prices represent factual information that can be verified from several sources, there is no violation. It could have been a violation had the information been exclusively published by the source.

ShooterMcCFA

Marc Randall, CFA, is an investment analyst. During a meeting with a potential client, Randall's boss states that, "You can be sure our investments will always outperform Treasury Bonds because of our fine research staff members, like Marc." Randall knows that this statement is:

A) a violation of fiduciary duties owed to clients under the Standards.

B) not in violation of the Code and Standards.

C) a violation of the Standard concerning prohibition against misrepresentation.

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Under Standard I(C), members are forbidden from guaranteeing a specific rate of return on volatile investments. Therefore, the statement is in violation of the Standard.

ShooterMcCFA

Sandra Bulow, CFA, is responsible for updating her employing firm’s website to include changes in analysis techniques and trading procedures. She is often very delinquent in making these changes, despite working extensive hours. She is aware clients are using the website to make investment decisions, and has received complaints from the sales department as the information on the website if often different from what is presented in sales meetings. Bulow is most likely:

A) in violation of Standard I(C) "Misrepresentation."

B) in violation of Standard III(B) "Fair Dealing."

C) not in violation of any Standard.

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Bulow is most likely in violation of Standard I(C) "Misrepresentation." The web site information is erroneous, and needs to be updated to match the firm’s current practices.

ShooterMcCFA

NQX Partners is a Los Angeles-based investment firm specializing in the equities of natural resources companies, both as an underwriter of secondary issues and as a market-maker. Paula Braman, CFA, an analyst at NQX, is putting together a research report on Melbourne Gold, an Australian firm. She is in possession of a report distributed by a little-known Brisbane brokerage firm, Ipswich, which has several CFA charter holders on the staff. Braman also uses market data available from the financial press and recognized statistical sources. In her report, she uses several unaltered paragraphs and data tables from the Ipswich report as well as financial data from the other sources. For neither of these does she provide acknowledgement of the original source.
Braman attended a lunch-time presentation put on by Melbourne Gold (MG) for representatives of NQX and other firms. During the meeting, Braman agrees to accept a trip to Australia to visit MG’s operations as well as spend several days touring Australia at MG’s expense. Braman had a few drinks at the lunch-time presentation. On the way back to the office, she was arrested for driving while intoxicated (DWI), and this is her second offense.
Braman recently hired a personal assistant who will be partly paid by her and partly paid by NQX. The assistant had passed the level one CFA exam prior to being hired. Knowing that Braman had the CFA designation, during the application process the assistant mentioned having passed the exam both on his resume and in the interview.
For the past 10 years, Braman has served as a proctor for the CFA exam. Braman tells her assistant that she normally receives the examinations on the Thursday before the exam. Given the low pass rate at Level II, Braman asks her assistant if she would like an advance copy of the next exam. Braman’s assistant declines the offer. However, Braman’s assistant has been very vocal about expressing opinions about the low pass rate. The assistant claims, “CFA Institute is simply trying to increase its cash flow by continuing to fail candidates.”
Initially, Braman only had the assistant type up routine forms, stuff envelopes, screen calls, and schedule meetings. The assistant did nothing related to analysis or decision making. Braman has been pleased with the work of the assistant and often tells associates that she “has a level one CFA as an assistant.” Recently, Braman has allowed the assistant to write portions of preliminary reports, which Braman reviews before incorporating them into the final reports.
With respect to the use of information in the report on MG, Braman was:

A) in violation of the Standards in the use of all the sources of data.

B) not in violation of the Standards.

C) in violation of the Standards in the use of the Ipswich report but not the data from the other sources.

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Braman has violated Standard I(C), Misrepresentation, by including unaltered material from the Ipswich research report without acknowledgement of its original report. The use of the financial data from the financial press and recognized statistical sources without acknowledgement is permissible. (Study Session 1, LOS 2.a,b)

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With respect to Braman’s drinking and being arrested for a DWI, Braman was:

A) in violation of the Standards with respect to both the drinking and the DWI arrest.

B) in violation of the Standards with respect to the DWI arrest but not the drinking itself.

C) not in violation of the Standards.

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Braman's drinking is in violation of Standard I(D): Misconduct which states that “Members… must not engage in any professional conduct involving dishonesty, fraud, or deceit or commit any act that reflects adversely on their professional reputation, integrity, or competence.” Being charged with DWI during working hours is a violation of the Standards because this indicates according to the law that Braman was intoxicated which could impair her ability to perform her duties at work. (Study Session 1, LOS 2.a,b)

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If Braman accepts the trip to Australia as offered by MG, based on the given information, she is:

A) not in violation of the Standards and the value of the trip is not important.

B) in violation of the Standards.

C) not in violation of the Standards if the trip’s value is not in excess of $1,000.

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The trip to MG’s operations is questionable, but the extra days touring Australia clearly make accepting the trip a violation of Standard I(B): Independence and Objectivity. The extra perks of the trip could impair Braman’s judgment. Note that in this case, the dollar amount of the perks is not relevant. (Study Session 1, LOS 2.a,b)

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There was a misuse of the CFA designation by:

A) neither Braman nor the assistant.

B) Braman but not the assistant.

C) neither Braman nor the assistant.

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The assistant was within his right to mention that he had passed the level one exam in the interview and on his resume. It is a statement of fact. Without any more information, we cannot say the assistant misused the CFA designation. Braman should not have said she “has a level one CFA as an assistant”. This is a violation of Standard VII(B), Reference to CFA Institute, the CFA Designation, and the CFA Program. (Study Session 1, LOS 2.a,b)

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With respect to Standard VII(A), Conduct as Members and Candidates in the CFA Program:

A) Neither Braman nor her assistant are in violation of the standard.

B) Both Braman and her assistant are in violation of the standard.

C) Braman is in violation of the standard but her assistant is not in violation.

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According to Standard VII(A), Members and Candidates must not compromise the integrity of the CFA exam. Braman’s offer to supply an advance copy of the exam is an obvious violation. However, the standard does not prohibit expressing opinions about the CFA Institute; thus, Braman’s assistant is not in violation with his comments. (Study Session 1, LOS 2.a,b)

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Braman tells her assistant that she is writing a more favorable report on MG than is warranted to secure a big bond underwriting deal with MG in the near future. She is doing this at the order of the senior management of NQX. Braman gives the assistant her report on MG to type up for dissemination. The assistant types the report and helps in its dissemination. With respect to this:

A) Braman is in violation of the Code and Standards, but the assistant is not.

B) neither the assistant nor Braman are in violation of the Code and Standards.

C) both the assistant and Braman are in violation of the Code and Standards.

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Braman is in violation of Standard I(B) on Independence and Objectivity by composing a biased report. The assistant has been told the report is biased and violates Standard I(A) by knowingly participating and assisting in a violation of the Standards. (Study Session 1, LOS 2.a,b)

ShooterMcCFA

A CFA charterholder in a managerial position is in the process of hiring new analysts. If the charterholder conducts background checks on the job applicants with respect to their character, the charterholder has:

A) complied with Standard I(D) concerning professional misconduct.

B) violated the Code of Ethics by invading the applicants' privacy.

C) complied with Standard VII(A) concerning conduct of members and candidates in the CFA Program.

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To avoid potential problems and comply with Standard I(D), employers are encouraged to conduct background checks on potential employees.

ShooterMcCFA

A CFA charterholder who comes to work intoxicated is:

A) in violation of Standard IV(A) concerning duties to employer.

B) in violation of Standard I(D) concerning professional misconduct.

C) not in violation of the standards.

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Being intoxicated at work is poor personal behavior. It is a violation of Standard I(D), which covers professional competence and integrity.

ShooterMcCFA

A CFA charterholder is caught shoplifting and is sentenced to nine months in prison. Is this a violation of Standard I(D) Misconduct?

A) Yes, because the prison sentence is more than six months.

B) Yes, because the crime involved stealing.

C) No, because the crime does not relate to the investment profession.

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Any act involving lying, cheating, stealing, or other dishonest conduct that reflects adversely on the charterholder’s professional activities is a violation of Standard I(D). Although the crime did not relate to the investment profession, it certainly reflected adversely on the charterholder professionally.

ShooterMcCFA

All of the following are violations of Standard I(D), Misconduct, EXCEPT:

A) conviction of a misdemeanor involving civil disobedience in support of one’s personal beliefs.

B) conviction of a crime involving fraud.

C) any conduct that undermines confidence that the CFA charter represents a level of achievement based on merit and ethical conduct.

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The Code and Standards do not focus on personal conduct as long as the conduct does not reflect poorly on one’s professional reputation, integrity, or competence.

ShooterMcCFA

An analyst belongs to a nationally recognized charitable organization, which requires dues for membership. The analyst has worked out a deal under which he provides money management advice in lieu of paying dues. While performing services for the organization, the analyst discovers some useful computer programs that his predecessor developed and left as the property of the organization. The analyst decides to use the computer programs in his consulting business. This action is:

A) appropriate since the analyst is technically an employee of the organization.

B) a violation of Standard I(D) concerning misconduct.

C) a violation of Standard III(B) concerning fair dealing.

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Since the programs are the property of the organization, the analyst can only use them for the organization. It does not matter whether the analyst is an employee or not. Personal use of the programs without permission from the charitable organization is dishonest and prohibited.

ShooterMcCFA

An investment advisor takes a trip for which his firm will pay the expenses. Upon his return he alters some of the numbers on restaurant receipts to inflate the expenses by $64. Is this a violation of Standard I(D)?

A) No, if such a crime carries less than a one-year prison term.

B) Yes, because it reflects adversely on the charterholder’s professional reputation.

C) Yes, because the amount involved is over $50.

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Professional conduct involving dishonesty, fraud, or deceit is a direct violation of Standard I(D), Misconduct.