cyber21

Nancy Hall, a candidate in the CFA program, is an analyst for a mutual fund. As part of her job she makes company visits to interview executives. On a recent trip she stayed with her sister instead of at a hotel. In her expenses Hall included a hotel charge of $100, which was less than the amount allowed by her employer. After receiving a check for her expenses, Hall disclosed to her supervisor that she had stayed with her sister instead of at a hotel. She also returned the $100 to her employer. According to CFA Institute Standards of Professional Conduct, which of the following statements best describes Hall's professional conduct?

A) Hall did not engage in professional misconduct because she eventually disclosed this information and returned the $100 to her employer.

B) Hall engaged in professional misconduct.

C) Hall did not engage in professional misconduct because she did not meet all of the requirements to use the CFA designation.

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Hall engaged in professional misconduct because her act involved dishonesty, fraud, and deceit.

cyber21

Which of the following does NOT violate Standard I(D), Misconduct? Roland Lawson, a financial analyst:

A) committed perjury in connection with a lawsuit against his firm.

B) is arrested for participating in a nonviolent protest.

C) drinks excessively during business meetings with clients and returns to work under the influence of alcohol.

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Any professional conduct that involves dishonesty, fraud, or deceit is a violation of Standard I(D), Misconduct. One must refrain from activities that reflect poorly on integrity, reputation, trustworthiness, or professional conduct. The focus of the Standard is on professional, not personal, conduct.

cyber21

Timothy Hooper, CFA, is a security analyst at an investment firm. In his spare time, Hooper serves as a volunteer for City Pride, which collects clothes for the homeless. Hooper has occasionally given some of the clothes to his friends or sold the clothes instead of returning all of the clothing to City Pride. City Pride discovers what he has been doing and dismisses him. Later, City Pride learns that other volunteer organizations have dismissed Hooper for similar actions. Has Hooper violated Standard I(D) on professional misconduct in the CFA Institute Standards of Professional Conduct?

A) Yes.

B) No, because Hooper's conduct is unrelated to his professional activities as a security analyst.

C) No, because Hooper volunteers his services to City Pride.

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Hooper violated Standard I(D) because he repeatedly engaged in conduct that involves dishonest conduct. This violation occurred despite the fact that his offenses do not relate directly to his professional activities. However, Hooper’s conduct reflects poorly on his professional reputation and integrity.

cyber21

Trude Front, CFA, is a portfolio manager. While in the normal course of her duties, she happens to overhear material non-public information concerning the stock of VTT Bowser. She purchases several exchange traded funds which contain VTT Bowser, while shorting similar exchange traded funds which do not contain VTT Bowser. This is most likely:

A) a violation of Standard II(A) "Material Non-Public Information."

B) not a violation of Standard II(A) "Material Non-Public Information."

C) only a violation of Standard II(A) "Material Non-Public Information" because Front is simultaneously shorting the funds which do not contain VTT Bowser.

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This is a violation of Standard II(A) "Material Non-Public Information" irrespective of whether Front is simultaneously shorting the funds which do not contain VTT Bowser. Her trades are motivated by material non-public information.

cyber21

An analyst provides services for a charitable organization and in return gets free membership in the organization. Part of her job is to manage the liquid assets of the organization, and those assets include stocks. Her supervisor in the organization calls her and tells her to buy a certain stock for the portfolio based upon insider information from a board member in the organization. The analyst objects, but the supervisor says this is what they have always done and sees no reason for changing now. The analyst complies with the request. With respect to Standards IV(A), Loyalty to Employer, and II(A), Material Nonpublic Information, the analyst violated:

A) only Standard II(A) that prohibits insider trading.

B) both Standards IV(A) and II(A).

C) only Standard IV(A) requiring duty of loyalty.

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An employee/employer relationship does not necessarily mean monetary compensation for services. Complying with the request is a violation of II(A) which prohibits trading on insider information.  Standard IV(A) Loyalty deals with going into business for yourself, leaving an employer and continuing to act in the employer's best interest until their resignation becomes effective, and whistleblowing which means that the member's interests and their firm's interests are secondary to protecting the integrity of capital markets and the interests of the clients.

cyber21

A stockbroker who is a CFA Institute member is called on the telephone by the CEO of a large company. The CEO asks to buy shares of the CEO’s company for the accounts of the CEO’s children. In the course of the conversation, the CEO says this will really pay off when the upcoming takeover goes through. The stockbroker checks her sources and finds no information about the takeover. In this case the broker should:

A) only execute the order in compliance with Standard III(A), Loyalty, Prudence, and Care. Since the client is buying the stock for the children, there is not a problem.

B) do neither of the actions listed here.

C) execute the order for all clients as required by Standard III(B), Fair Dealing.

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Doing any of these actions would be a violation of Standard II(A), Material Nonpublic Information. Members and Candidates must not act or induce others to act on material nonpublic information.

cyber21

A stockbroker who is a member of CFA Institute has a part-time housekeeper who also works for the CEO of Festival, Inc. One day the housekeeper mentions to the broker that she saw the CEO of Festival having a conversation at his home with John Tater, who is a nationally known corporate lawyer and consultant. The stockbroker is restricted from trading on this information:

A) for both of the reasons listed here.

B) if the housekeeper says the meeting concerned a tender offer and the broker knows that it is non-public information.

C) only if the broker knows that the meeting is non-public information.

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Standard II(A), Material Nonpublic Information, states “a member cannot trade or cause others to trade in a security while the member possesses material nonpublic information” A tender offer would certainly be material nonpublic information. Knowing that the meeting took place, and nothing else, does not restrict the broker. A reasonable investor would need to know more to determine if the information was material.

cyber21

A CFA Institute member is a U.S. citizen living and working in a foreign country. That country has no laws against insider trading. Based on this information, the CFA Institute member may:

A) trade using insider information.

B) not trade using insider information based upon the rules of the SEC.

C) not trade using insider information based upon the CFA Institute Standards.

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CFA Institute Standard II(A) prohibits trading using insider information. A member may not trade using such information regardless of the rules of the country where he/she lives.

cyber21

Andrea Waters is an investment analyst who has accumulated and analyzed several pieces of nonpublic information through her contacts with drug firms. Although no one piece of the information she collected is "material," Waters correctly concluded that the earnings of one of the drug companies would be unexpectedly high in the coming year. According to CFA Institute Standards of Professional Conduct, Waters:

A) can use the information to make investment recommendations and decisions.

B) cannot legally invest or make recommendations based on this information.

C) may use the information, but only after approval from a compliance officer or supervisor.

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Members who can piece together items of nonmaterial nonpublic information with public information can, based upon the mosaic theory, use such information for trading purposes.

cyber21

Which one of the following constitutes the illegal use of material nonpublic information?

A) Trading based on your analytical review of the firm's future prospects.

B) Trading immediately after attending the firm's annual shareholders’ meeting.

C) Trading on information your sister, the firm's attorney, told you over dinner.

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Members may not trade on material nonpublic information; therefore, the information conveyed by the firm’s attorney may not be used by a member for trading purposes.