12、Myers has disclosed her partnership interest in the software company to Harrison, including the potential for additional compensation and the possible conflicts of interest.  

§       One of Myers’ software clients, Breakthrough Pharmaceuticals (“Breakthrough”), is a publicly traded corporation that is also held in portfolios of Ironclad’s clients.  In the course of their business relationship, Breakthrough’s chief executive officer informs Myers that the company has been experiencing problems making retirement benefit payments, and its pension plan has recently gone from “overfunded” to “significantly underfunded” as a result of market conditions.

§       Breakthrough’s chief executive officer indicates to Myers that he is attempting to source additional short-term financing to make retiree benefit payments and will disclose the significant “underfunded status” of the pension plan in the upcoming financial statements.  

§       Myers, concerned about Ironclad clients holding stock of Breakthrough given the impact on earnings from the current pension troubles and short-term liquidity issues, informs Harrison of the impending disclosure. 

§       Ironclad sells 1,800,000 shares of Breakthrough for clients, causing the price to drop $4 per share. 

§       Upon disclosure of the pension troubles, Breakthrough’s stock dropped 18 percent. 

According to Standard II: Integrity of Capital Markets, Myers:

A)   has violated the Standard by sharing material nonpublic information with Harrison.

B)   has not violated the Standard by sharing material nonpublic information with Harrison because the information did not involve a tender offer.

C)   has not violated the Standard since the information shared with Harrison was used to fulfill Ironclad’s fiduciary duty to avoid significant losses.

D)   has not violated the Standard since the information shared with Harrison was non-material and nonpublic and based on the “mosaic theory.”

13、Ironclad owns shares in several research and technology companies, including approximately 4 percent of the outstanding shares of Advanced DSL (“Advanced”), Internet Connections (“Internet”), and approximately 6 percent of the outstanding shares of Speedy Chip Technology (“Speedy Chip”) and Wavelength Digital (“Wavelength”).

§       Harrison serves on the board of directors for Internet and Wavelength, while Myers provides consulting services for Speedy Chip. Harrison receives cash compensation and stock options for his services, while Myers receives restricted stock and stock options.

§       The investment bank that led the public offering of Internet and Speedy Chip and seven of nine sell-side analysts covering the companies have “sell” ratings on the stocks. Ironclad’s analysts have also issued “sell” recommendations on the companies due to, among other issues, lack of earnings transparency and quality of earnings.

§       Harrison increases his position in both Internet and Wavelength citing “growth opportunities” and “consensus opinion.”

Which of the following least likely applies to Harrison and Myers?

A)   Standard IV(B): Additional Compensation Arrangements.

B)   Standard I(B): Independence and Objectivity.

C)   Standard III(A): Loyalty, Prudence, and Care.

D)   Standard II(A): Material Nonpublic Information.

14、Harrison, as chief investment officer, is chairman of Ironclad’s proxy voting committee, while Myers is a voting member.  Ironclad, as a discretionary investment manager, votes proxies on behalf of clients.

§       Ironclad is currently reviewing proxies for several companies covered in research, including technology companies Advanced DSL (“Advanced”), Internet Connections (“Internet”), Speedy Chip Technology (“Speedy Chip”) and Wavelength Digital (“Wavelength”), which have all presented the expensing of employee stock options for vote in their current proxies.

§       Investment personnel of Ironclad recently participated in an industry forum in support of increased disclosure for company stock options, which Ironclad believes provides investors with a more accurate perspective of corporate earnings.

§       Contrary to committee consensus, Harrison and Myers vote client proxies “against” the expensing of employee stock options for Internet, Wavelength and Speedy Chip.

All of the following describe Harrison's actions for compliance with the Code and Standards regarding proxy voting EXCEPT:

A)   Harrison should maintain the confidentiality of voting information on behalf of Ironclad’s clients.

B)   Harrison should discard all proxies on behalf of Ironclad’s clients when there is a conflict of interest.

C)   Harrison should abstain from voting on matters affecting Internet and Wavelength to avoid conflicts of interest.

D)   Harrison should vote in accordance with Ironclad’s policy and coordinate major proxy issues across all client accounts.

15、The term "material" in the phrase "material nonpublic information" refers to information that is likely to affect significantly the market price of the issuing company's securities or that:

A)   is derived by the financial analyst from direct communication with an issuing company's management.

B)   is likely to preclude the financial analyst or analyst's firm from rendering unbiased or objective advice.

C)   is acquired by the financial analyst from a special or confidential relationship with the issuing company.

D)   is likely to be considered important by reasonable investors in determining whether to trade a particular security.

12、Myers has disclosed her partnership interest in the software company to Harrison, including the potential for additional compensation and the possible conflicts of interest.  

§       One of Myers’ software clients, Breakthrough Pharmaceuticals (“Breakthrough”), is a publicly traded corporation that is also held in portfolios of Ironclad’s clients.  In the course of their business relationship, Breakthrough’s chief executive officer informs Myers that the company has been experiencing problems making retirement benefit payments, and its pension plan has recently gone from “overfunded” to “significantly underfunded” as a result of market conditions.

§       Breakthrough’s chief executive officer indicates to Myers that he is attempting to source additional short-term financing to make retiree benefit payments and will disclose the significant “underfunded status” of the pension plan in the upcoming financial statements.  

§       Myers, concerned about Ironclad clients holding stock of Breakthrough given the impact on earnings from the current pension troubles and short-term liquidity issues, informs Harrison of the impending disclosure. 

§       Ironclad sells 1,800,000 shares of Breakthrough for clients, causing the price to drop $4 per share. 

§       Upon disclosure of the pension troubles, Breakthrough’s stock dropped 18 percent. 

According to Standard II: Integrity of Capital Markets, Myers:

A)   has violated the Standard by sharing material nonpublic information with Harrison.

B)   has not violated the Standard by sharing material nonpublic information with Harrison because the information did not involve a tender offer.

C)   has not violated the Standard since the information shared with Harrison was used to fulfill Ironclad’s fiduciary duty to avoid significant losses.

D)   has not violated the Standard since the information shared with Harrison was non-material and nonpublic and based on the “mosaic theory.”

The correct answer was A)

Although the information shared by Myers may have helped Ironclad’s clients avoid losses in shares of Breakthrough, the information was material nonpublic information. In this example, Myers’ software company owes a duty of loyal and confidentiality to Breakthrough. Information is “material” if its disclosure would have an impact on the stock or if a reasonable investor would want to know the information prior to making an investment decision. Material is “nonpublic” until it has been generally disseminated to the marketplace and investors have had an opportunity to react to the information. The information about Breakthrough’s pension difficulties was both material and nonpublic, as the stock dropped significantly upon disclosure of the information in the market. Therefore, Myers had a duty to keep the information confidential and not to trade, or cause others to trade, on the information.

13、Ironclad owns shares in several research and technology companies, including approximately 4 percent of the outstanding shares of Advanced DSL (“Advanced”), Internet Connections (“Internet”), and approximately 6 percent of the outstanding shares of Speedy Chip Technology (“Speedy Chip”) and Wavelength Digital (“Wavelength”).

§       Harrison serves on the board of directors for Internet and Wavelength, while Myers provides consulting services for Speedy Chip. Harrison receives cash compensation and stock options for his services, while Myers receives restricted stock and stock options.

§       The investment bank that led the public offering of Internet and Speedy Chip and seven of nine sell-side analysts covering the companies have “sell” ratings on the stocks. Ironclad’s analysts have also issued “sell” recommendations on the companies due to, among other issues, lack of earnings transparency and quality of earnings.

§       Harrison increases his position in both Internet and Wavelength citing “growth opportunities” and “consensus opinion.”

Which of the following least likely applies to Harrison and Myers?

A)   Standard IV(B): Additional Compensation Arrangements.

B)   Standard I(B): Independence and Objectivity.

C)   Standard III(A): Loyalty, Prudence, and Care.

D)   Standard II(A): Material Nonpublic Information.

The correct answer was D)

Standard II(A) Material Nonpublic Information is least likely to apply to both Harrison and Myers in this situation. Given Harrison’s role on the boards of directors for Internet and Wavelength, he is in the position to potentially receive material nonpublic information; however, there are no facts presented that would infer that he either received or used material nonpublic information about Internet or Wavelength. Myers, as a benefits consultant for Speedy Chip, also may be in a position to receive to material nonpublic information, but again there are no facts presented that would infer Myers’ receipt or use of material nonpublic information.

14、Harrison, as chief investment officer, is chairman of Ironclad’s proxy voting committee, while Myers is a voting member.  Ironclad, as a discretionary investment manager, votes proxies on behalf of clients.

§       Ironclad is currently reviewing proxies for several companies covered in research, including technology companies Advanced DSL (“Advanced”), Internet Connections (“Internet”), Speedy Chip Technology (“Speedy Chip”) and Wavelength Digital (“Wavelength”), which have all presented the expensing of employee stock options for vote in their current proxies.

§       Investment personnel of Ironclad recently participated in an industry forum in support of increased disclosure for company stock options, which Ironclad believes provides investors with a more accurate perspective of corporate earnings.

§       Contrary to committee consensus, Harrison and Myers vote client proxies “against” the expensing of employee stock options for Internet, Wavelength and Speedy Chip.

All of the following describe Harrison's actions for compliance with the Code and Standards regarding proxy voting EXCEPT:

A)   Harrison should maintain the confidentiality of voting information on behalf of Ironclad’s clients.

B)   Harrison should discard all proxies on behalf of Ironclad’s clients when there is a conflict of interest.

C)   Harrison should abstain from voting on matters affecting Internet and Wavelength to avoid conflicts of interest.

D)   Harrison should vote in accordance with Ironclad’s policy and coordinate major proxy issues across all client accounts.

The correct answer was B)

Proxy voting is a plan asset under ERISA and as such, is subject to the fiduciary duty obligations. Ironclad, as a discretionary investment manager, is responsible (unless otherwise stipulated in the client guidelines or agreement) for making informed and reasonable decisions regarding proxy voting on behalf of clients. Among other things, Ironclad should have a proxy voting policy and a process for identifying and reviewing major proxy issues for appropriate clients. Ironclad and Harrison also have an obligation to avoid conflicts of interest when voting proxies. Although Harrison has a conflict of interest in voting issues on behalf of Internet and Wavelength due to his role on their board of directors, proxies should not be discarded under any circumstances, as such action would constitute a breach of fiduciary duty. Harrison should abstain from voting on matters affecting Internet and Wavelength to avoid the appearance of a conflict of interest. Harrison should also ensure proper treatment of any confidential information received in his role on the respective boards of directors. Harrison should maintain confidentiality of voting information on behalf of clients and follow Ironclad’s proxy voting policy, coordinating major proxy voting issues across all client accounts.

15、The term "material" in the phrase "material nonpublic information" refers to information that is likely to affect significantly the market price of the issuing company's securities or that:

A)   is derived by the financial analyst from direct communication with an issuing company's management.

B)   is likely to preclude the financial analyst or analyst's firm from rendering unbiased or objective advice.

C)   is acquired by the financial analyst from a special or confidential relationship with the issuing company.

D)   is likely to be considered important by reasonable investors in determining whether to trade a particular security.

The correct answer was D)

An item of information is material if its disclosure would be likely to have an impact on the price of a security, or if reasonable investors would want to know the information before investing.