Joan Platt, CFA, operates an investment firm in New York, but maintains an office in Xania. Platts firm invests on its clients behalf in both domestic and international stocks and bonds. Platts employees include two analysts, Paula Linstrom, CFA, and Hershel Wadel, a member of the CFA Institute. Both analysts report to Platt directly. Thorvald Knudsen, CFA, manages the international bond portfolio.
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 advisers, and also help some of her Xanian clients reach their investment objectives.
Platt instructs Wadel to write a research report on Gamma Company. Wadel's wife inherited 500 shares of Gamma Company from her father when he died five years ago. Gamma stock currently sells for $35 a share. Wadel does not believe that informing Platt about his wife's inheritance is necessary.
Doris Black, one of Wadel's long-time clients, verbally promised Wadel that he could use her vacation home in Aspen, Colo., for a week during skiing season if the return on her portfolio exceeded its benchmark by two percentage points during the next year. Black also promised to reimburse Wadel for his travel expenses. Because Wadel is the sole manager of Blacks portfolio, he says nothing to Platt about his arrangement with Black.
Platt instructs Linstrom to write a research report on Delta Enterprises. Delta's stock is widely held by institutional and individual investors. Linstrom does not own any Delta shares, though one of her friends owns 100 shares of Delta. Linstrom does not believe that informing Platt about her friend's ownership of Delta shares is necessary.
Linstrom has a client, Mandy Miller, with a large account. Miller has set a return goal for her portfolio, promising Linstrom that if the portfolio exceeded the target return, she would let Linstrom use her time-share in St. Maarten in December. Linstrom sent an e-mail to Platt describing Millers promise to her. Platt promptly replied to her email granting her permission to enter the agreement.
In February, Linstrom was able to arrange for the purchase of Brady Company bonds at a significant discount to market value. The purchase was made in three blocks at 13 percent, 15 percent, and 12 percent discounts to market value. Linstrom allocated the 15 percent discount block to Millers account and the balance to her remaining clients.
Knudsens uncle, Gustaf Jensen, owns a construction firm that has extra cash. When Jensen saw Knudsen at a family event last November, he asked Knudsen to give him advice about purchasing domestic bonds for the construction firm. In exchange for the advice, the construction firm would pay Knudsen $5,000 per year. At the same event, Knudsens aunt, Hanna Jorgensen, approached Knudsen and asked if he would manage Jorgensens apartment building for a fee of 10 percent of the gross rents. Knudsen agreed to both Jensens and Jorgensens proposals. Knudsen informed Platt of Jensens request, but not about the Jorgensen arrangement.
Platt suspects that one of the firms unpaid interns has violated a federal securities regulation. Which of the following statements about Linstrom and Wadel's conduct regarding their research reports is TRUE? | A) | Wadel did not violate Standard VI(A): Disclosure of Conflicts, and Linstrom did violate Standard VI(A). |
| | B) | Neither Linstrom nor Wadel violated Standard VI(A): Disclosure of Conflicts. |
| C) | Wadel violated Standard VI(A): Disclosure of Conflicts, and Linstrom did not violate Standard VI(A). |
| | D) | Both Linstrom and Wadel violated Standard VI(A): Disclosure of Conflicts. |
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Answer and ExplanationWadel violated Standard VI(A) by not disclosing his wifes holdings, but Linstrom is not in violation of the Standard, as a friends ownership of the shares should not be expected to impair her ability to make objective decisions.
What is the obligation, if any, to disclose Wadels arrangement with Black? A) | Wadel must disclose the arrangement to Platt but is not required to disclose the arrangement to his other clients. |
| | B) | Wadel need not disclose anything to his clients or to Platt because he is violating no fiduciary duty. |
| | C) | Wadel must disclose the arrangements to his clients and to Platt only if he believes it will create a conflict with his responsibilities to other clients. |
| | D) | Wadel need not disclose the vacation-home deal to Platt because no money is changing hands, but must disclose the expense reimbursement to both Platt and his clients. |
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Answer and Explanation
Wadel is required to disclose the arrangement between him and Black under Standard IV(B): Additional Compensation Arrangements, regardless of whether or not the compensation is cash or noncash. Under Standard I(B): Independence and Objectivity, members may accept bonuses or gifts from clients , so long as they disclose them to their employers, because gifts in a client relationship are deemed less likely to affect a member's objectivity and independence than gifts in other situations. Token gifts need not be disclosed.
Knudsen violated: | A) | no Standards with regards to both the Jensen and Jorgensen deals. |
| B) | Standard IV(B): Additional Compensation with relation to the Jensen deal, but did not violate the Standard with relation to the Jorgensen deal. |
| | C) | Standard IV(B): Additional Compensation with relation to the Jorgensen deal. |
| | D) | Standard IV(B): Additional Compensation with relation to both the Jensen deal and the Jorgensen deal. |
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Answer and Explanation
Notifying Platt about the Jensen deal is not enough. He needs permission in writing from both parties before accepting the work. Thus, Knudsen violated Standard IV(B) with relation to the Jensen matter. However, it does not appear that the work performed for Jorgensen is in competition with Platts employer, so this aspect is not in violation of Standard IV(B).
The handling of the Miller account: | A) | violated Standard IV(B): Additional Compensation Arrangements, Standard III(B): Fair Dealing, and Standard IV(C): Responsibilities of Supervisors. |
| B) | violated Standard III(B): Fair Dealing, but not Standard IV(B): Additional Compensation Arrangements. |
| | C) | did not violate the Code and Standards because the appropriate disclosures were made. |
| | D) | violated Standard IV(B): Additional Compensation Arrangements and Standard III(B): Fair Dealing. |
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Answer and Explanation
Linstrom did not violate Standard IV(B) because she disclosed Millers offer to Platt. However, her allocation of the best lot of bonds to Millers account violated Standard III(B).
According to the Standards, how must Platt deal with the interns alleged illegal activity? | A) | Tell the intern to stop the conduct. |
| | B) | Report the interns behavior to the appropriate regulatory authority. |
| C) | Initiate an investigation and place limits on the interns activities pending the outcome. |
| | D) | Do nothing, as the intern is not receiving compensation, and as such is not an employee of the company. |
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Answer and Explanation
Platt must initiate an investigation, and must also take steps to ensure that additional violations do not occur during the investigation. The investigation could be handled internally by the firms compliance officer, or could involve outside legal counsel. Simply instructing the intern to stop the conduct is not sufficient the Standards require more of a proactive response. Reporting the intern to the authorities is not appropriate because Platt is not sure the intern is violating the law. The fact that the intern is not paid does not absolve Platt or her company from liability for the interns actions.
Platt is considering adopting local investment practices in Xania. According to the Standards, Platt may: | A) | not use material inside information unless trading Xanian stocks. |
| B) | not use material inside information when trading in Xania. |
| | C) | use material inside information only when trading for Xanian nationals. |
| | D) | use material inside information when trading in Xania only if the information does not relate to a tender offer. |
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Answer and Explanation
Standard II(A): Material Nonpublic Information does not allow the use of material nonpublic information in investment decisions. Platt is bound by the law of the land if it is stricter than the Standards, and by the Standards if they are stricter than the law. Since the Standards are stricter than Xanian law, Platts Xanian operations are governed by the Standards. Thus she cannot use material nonpublic information under any circumstances. | 
发表于 2008-9-16 15:19
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