Marc Feldman, CFA, is manager of corporate investor relations for a high-tech startup, zippy.com, in Boise, Idaho. Feldman learns that Larry Smith, controller, is altering the accounting records. Feldman advises some of his personal friends to sell short zippy.com. This action:

A) constitutes professional misconduct but not the use of nonpublic information and is a violation of the Code and Standards.

B) constitutes a violation of the Standard concerning prohibition against misrepresentation.

C) is not a violation of the Code and Standards since Feldman has no way of knowing what the correct accounting numbers are.

D) constitutes the use of material nonpublic information and is a violation of the Code and Standards.

Marc Feldman, CFA, is manager of corporate investor relations for a high-tech startup, zippy.com, in Boise, Idaho. Feldman learns that Larry Smith, controller, is altering the accounting records. He decides that any ramifications from such activity is Smith's problem and does not report this fact. According to the CFA Institute Code and Standards he should or is required to do all of the following EXCEPT:

A) urge Smith to cease altering the accounting records.

B) report the activity to the FASB or other relevant regulatory body.

C) dissociate from the activity.

D) determine legality, consulting counsel if necessary.

Marc Feldman, CFA, is manager of corporate investor relations for a high-tech startup, zippy.com, in Boise, Idaho. Feldman learns that Larry Smith, controller, is altering the accounting records. Knowing the data is incorrect, Feldman releases Smith's financial data to investors. This action:

A) constitutes a violation of Standard III(D) concerning performance presentation.

B) constitutes a violation of his fundamental responsibilities under the Code and Standards.

C) constitutes a violation of the Standard concerning duty to employer.

D) is not a violation of the Code and Standards, since Marc has no way of knowing what the correct accounting numbers are.

Williams and Fudd is a major London-based brokerage and investment banking firm. Heritage Group, a money management firm, is the first, second, or third largest holder of each of the securities listed on Williams & Fudd's "PrimeShare #10" equity security list.

Williams and Fudd faxed a preliminary copy of a research update bulletin on Yeshe Corp to Heritage at 7 a.m. on Wednesday the 23^rd. The report, a change from a "hold" to a "strong buy", was released to the public at 11 a.m. Between 11:00 and 11:20 a.m., Heritage executed a series of trades with which they bought 1.25 percent of Yeshe's publicly traded stock. This action is:

A) in accordance with the CFA Institute Code and Standards.

B) a violation of the Standard concerning priority of transactions, but would conform if Heritage had waited at least 48 hours after the report was issued.

C) a violation of the Standard concerning fair dealing.

D) a violation of the Standard concerning disclosure of conflict.

Williams and Fudd is a major London-based brokerage and investment banking firm. Heritage Group, a money management firm, is the first, second, or third largest holder of each of the securities listed on Williams & Fudd's "PrimeShare #10" equity security list.

A) a violation of the Standard concerning fair dealing.

B) a violation of the Standard concerning priority of transactions but would conform if Heritage had waited at least 48 hours after the report was issued.

C) a violation of the Standard concerning disclosure of conflicts.

D) in accordance with the CFA Institute Code and Standards.

Perley & Sons is an investment advisor company that just signed a contract with full discretionary power for the management of assets for Bright Future, a charitable fund. Without consultation, portfolio manager Martin Brown, CFA, decides to trade the funds assets through a brokerage firm that provides, as an additional benefit, research reports for companies in the microchip industry. These companies represent the main investment interest for most of the Perley & Sons clients. The Bright Future portfolio does not hold any equities in the microchip industry, and, because of its risk profile, is unlikely to ever do so. Which of the following activities represents a possible breach with the CFA Institute standards?

A) Exercising a selection principle that does not comply with the idea of best trade price and execution.

B) Accepting research reports from the brokerage firm that do not benefit client portfolios.

C) Lack of action in consulting with the client before choosing the brokerage firm.

D) Not disclosing this information to the Securities and Exchange Commission.

Using as his universe all companies in the steel industry, Reynold Anderson analyses the performance of stock prices for the industry. He succeeds in developing a regression model with excellent statistical control measures. The extrapolation from the model shows low risk variance of the securities in this industry. Without the inclusion of non-steel stocks in the portfolio, Anderson concludes that, based on these results, every portfolio can use the steel industry securities to diversify and lower its risk. He persuades his clients to change their current portfolios. Anderson states that, as the models results show, some particular industries, such as car manufacturers, have underpriced stocks, and investors should take advantage of it. Anderson has violated the Standards because he:

A) does not distinguish the opinion, based on his model, from the fact.

B) does not honor his fiduciary duties.

C) does not consider the suitability of the investment.

D) is not clear enough about the model results.

While working on her report, Jean Paul, CFA, learns from her friend in the investment banking department that the company she is analyzing can expect a tender offer very soon. Concerning this conclusion, Paul can:

A) trade on it, because she figured it out by herself.

B) trade on it, because it is public information.

C) trade on it, because it concerns a tender offer.

D) not trade on it because it is material nonpublic information.

Mary Hiller, CFA, is a senior analyst at a mutual fund. She is also a member of the Board of the Directors of her daughters Skating Club. She is often asked for advice about the management of the club budget and about possible short-term investments, but she is not paid for this advice. She does not undertake any research to answer these questions, providing information based only on the general practices of the mutual fund at that moment. The only benefit she receives is a free monthly membership for her daughter that would usually cost $182. What should she do before making any recommendations, in order to comply with the CFA Institute requirements?

A) Inform her current clients about her outside consulting.

B) Obtain prior permission from her employer.

C) Discontinue her membership in the Board of the Directors at the Skating Club.

D) Consult only on her free time and do not accept any benefit greater than $100.

Noah Johnson, CFA, is a broker with a money management company, Factor, Inc. In a conversation with Tom Williams, Johnson describes the activities of Factor and discusses the characteristics of portfolio construction. Which of the following statements would NOT, on its face, be considered a misrepresentation?

A) Factor guarantees the portfolio will achieve its goal return.

B) Factor can provide any and all services that Williams could ever possibly want, as an investor.

C) If Williams is not satisfied with the current target return, Johnson can always improve it by increasing his T-bills share.

D) The portfolio securities were carefully selected by Factor to minimize Williams' risk.

In order to comply with the CFA Institute Standards, an analyst should:

A) use outside research only after verifying its accuracy.

B) use only his own research in making investment recommendations, because anything else would violate Standard I(B), Independence and Objectivity.

C) use only his company's research when making investment recommendations and use outside research for reports and analysis on stocks.

D) use only statistical data from outside sources when issuing investment recommendations.

Adam Core, CFA, is a supervisor at a brokerage firm. Recently he discovered a complicated mechanism that brokers are using to obtain referrals of new clients in exchange for reduced commissions and other benefits to existing clients. The new clients are not aware of this practice. Core consults with compliance counsel and initiates an investigation. Which of the following actions violates CFA Institute Standards?

A) Core makes sure that everybody in the company has a copy of the CFA Institute Code and Standards and a copy of the internal compliance system. He starts organizing special seminars on compliance with CFA Institute requirements.

B) Core proceeds with the investigation, coordinating his search with the compliance officer, the supervisors from another departments, the legal advisors, and his manager.

C) Core's first goal is to identify all violators.

D) Core starts collecting information and records on the case, as well as interviewing all involved employees. He decides against immediate limitations on their work, to insure the work of the company will continue undisturbed.

Which of the following is NOT considered plagiarism under CFA Institute Standards?

A) Using factual information from a recognized financial information agency without acknowledging the source of the information.

B) Adjusting an already published model and announcing it as a new model without acknowledging the source of the original model.

C) Improving an existing report and publishing it under a new title outside of the company without acknowledging the source of the original report.

D) Improving an existing report and using it inside the company under a new title without acknowledging the source of the original report.

Pamela Gee is a portfolio manager. She is planning to establish her own money management firm. She has already informed her employer, Branford, Inc., about her plans. In her remaining time at Branford, she can:

A) solicit Branford colleagues but not Branford clients.

B) start the registration of her new company.

C) inform her current clients about her resignation and let them know how to reach her, in case any problems arise in the future.

D) prepare a list of information from Branford files that she can use for future reference in client solicitation.

Marc Feldman, CFA, is manager of corporate investor relations for a high-tech startup, zippy.com, in Boise, Idaho. Feldman is well-known in the high tech community in Boise, and Dragon.com has asked if he will help them organize their investor relations function on a consulting basis. They offer him an all-expenses-paid two-week holiday for two on Australia's Gold Coast in payment. Regarding this offer as a CFA Institute member Feldman is:

A) allowed to accept the offer only with written approval from zippy and from Dragon.

B) allowed to accept the offer only with written approval from zippy.

C) not allowed to accept such an offer since it effectively places him in competition with his employer.

D) not allowed to accept such an offer since the compensation is non-cash and, therefore, is hard to quantify for the purpose of adhering to the Code and Standards.

Milton Baker, CFA, prepares a research report on the dynamics of a stock price. In his study, he uses a considerable number of information sources, both outside sources and his companys own research papers, prepared for both internal and public use. The report will first be distributed at the monthly department meeting and then later will be published on the companys Internet site. He thinks that he may have neglected to mention some of his sources in his reference list but decides that he needs to be concerned about full disclosure of his sources only for the public version of the report, so he will wait to revise his work until after the monthly meeting but before it is published on the internet site. Which Standards does Baker NOT comply with?

A) Standard I(C), Misrepresentation, I(B), Independence and Objectivity, and I(A), Knowledge of the Law.

B) Standard I(C), Misrepresentation, only.

C) Standard I(A), Knowledge of the Law, and I(B), Independence and Objectivity.

D) Standard I(C), Misrepresentation, and I(A), Knowledge of the Law.

While copying some of her research materials at work, Mary Jones comes across a few incomplete research notes written by one of her colleagues. As a result of reading the notes, and without further review, Jones immediately changes one of her stock recommendations from sell to buy. Which of the following CFA Institute Standards has Jones violated?

A) Standard I(B), Independence and Objectivity.

B) Standard V(A), Diligence and Reasonable Basis.

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

D) Standard III(B), Fair Dealing.

Kimberly Olson has recently become a CFA charterholder, and has just started a new job at Securities Online as a junior analyst. After preparing her first research report, Olson decides to consult with one of the senior analysts who make minor corrections to improve the content of the report. Olson makes changes to the report according to the senior analyst. Upon presentation of the report, Olson finds that statements made by the senior analyst contained incorrect information. Which of the following statements is TRUE?

A) Olson did not need to check the additional comments.

B) Olson should have accepted the editing because it came from a senior employee.

C) If Olson attributes those comments to the senior analyst, she cannot be held responsible for incorrect information.

D) Olson should have checked the accuracy of the comments.

Sally Watson works as an equity portfolio manager for Brunswick Investment Advisers (BIA). Wally Jackson, President and Chief Investment Officer of the firm, is a CFA charterholder who supervises Watson and other investment professionals within the firm. Watson is a candidate in the CFA Program, and she has recently passed the Level II exam. BIA's clients include trusts, foundations, endowments, corporations, and high net worth individuals, including accounts for family and friends of its employees. Jackson and Watson manage client portfolios with a growth strategy and concentrate on holdings in the healthcare, technology, and communications sectors. About 10 percent of BIA accounts are actively managed.

Because BIA uses Accommodate Broker Dealer for executing transactions, Accommodate provides research to BIA regarding holdings in accounts that are actively managed. The fees Accommodate charges BIA competitive, and BIA applies the same basic fee structure to all its clients. BIAs clients do not know about BIAs arrangement to get research information from Accommodate.

The clients do know that Accommodate routinely allocates shares in IPOs that it underwrites to BIA. Jackson is eagerly awaiting the IPO of a new technology company that he intends to allocate across all current portfolios, including the proprietary account and accounts of friends and family. Based upon his research, Jackson feels this IPO has good potential and has been working to get an unusually large number of shares of the IPO.

BIA has recently been awarded two new client accounts, totaling $100 million, which are in the process of completing transitions from other managers. Although an investment objective and guidelines have not been formalized for the accounts, Jackson allocates shares of the IPO across all client accounts on a pro rata basis, including an allocation for these new client accounts.

Watson serves on the board of directors for New Medical Developments, a biotech firm in which she maintains significant stock and options. BIA owns 4.5 percent of New Medicals stock on behalf of its clients. At a special meeting of New Medicals board, Watson learns that Remedy Inc. is preparing a confidential tender offer for all of New Medicals shares outstanding. After the meeting, Watson sends an electronic mail message to Jackson detailing the offer.

Jackson immediately places New Medical Developments on BIAs restricted list so representatives of BIA cannot recommend the stock. As rumors circulate in the investment community about the tender offer, some of Jacksons clients call and ask him to look into the possibility of purchasing stock in New Medical Developments. Jackson is fearful of his situation and puts off such requests. As a result, one client, Craig Mills, files a complaint with CFA Institute that Jackson is not responding to his requests. Knowing the precarious situation he is in, Jackson decides to wait until the tender offer has been announced to address Mills complaint.

CFA Institute becomes suspicious of Mills, because he seems to have a history of trading stocks for which material information soon becomes public. As part of an investigation into possible insider trading activities, CFA Institute asks Jackson to furnish CFA Institute with Mills trading history.

Watson must notify BIA of all the following EXCEPT:

A) her ownership of the stock in New Medical Developments.

B) her position on the board of New Medical Developments.

C) her plans for taking the next CFA exam.

D) any independent consulting work she performs for third parties.

A) a violation has occurred because BIA charges the same fee structure to all of its clients.

B) no violation has occurred as long as BIA informs CFA Institute that the firm receives research information from the brokerage firm.

C) a violation has occurred because a firm like BIA is not allowed to receive research information from outside sources.

D) no violation has occurred since BIA charges the fee structure to all of its clients.

A) No, Jackson has violated Standard VI(B) Priority of Transactions.

B) Yes, Jackson allocated the shares of the offering fairly on a pro rata basis to all client accounts.

C) No, Jackson has violated Standard III(C) Suitability.

D) Yes, Jackson has maintained the confidentiality of the new client accounts with the underwriter in allocating shares of the offering.

A) not initiate any investment action prior to the information being publicly disseminated.

B) trade the shares in client accounts before any accounts for himself, family or friends.

C) buy more shares for any client accounts that are underweight the position.

D) not take any investment action but communicate the information to other members of the proxy committee in preparation for consideration.

A) Standard II(A) Material Nonpublic Information.

B) Standard I (A) Knowledge of the Law.

C) Standard III(E) Preservation of Confidentiality.

D) Standard III(A) Loyalty, Prudence, and Care.

A) Jackson did not violate the Code and Standards if he provides Mills trading information to CFA Institute.

B) Jackson may not use the CFA designation without filing a Personal Conduct Statement on an annual basis.

C) Jackson violated the Code and Standards by putting New Medical Developments on its restricted stock list.

D) Jackson violated the Code and Standards by not responding to Mills.