1215

For years, John Berger, a CFA charterholder and CEO of a company, relied upon a set of reasonable procedures for preventing violations of the Standards of Practice in the firm. The company has recently arranged to have members of CFA Institute as mid-level supervisors throughout the firm. With this arrangement Berger has delegated the supervision of employees with respect to the Code and Standards to the mid-level managers. With this action Berger:

A) is relieved of his obligation to supervise the employees under the mid-level supervisors.

B) has violated Standard IV(C), Responsibilities of Supervisors.

C) is still responsible for seeing that procedures are in place to prevent violations of the Code and Standards.

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Berger has not violated any of the Standards. He has the right to delegate supervisory duties. This delegation does not relieve him of the responsibility of making sure that procedures are in place to prevent violations of the Code and Standards.

1215

A firm recently hired Hal Crane, CFA, to be a supervisor in the firm. Crane has reviewed the procedures for complying with the Code and Standards in the company. It is Crane’s belief that the procedures need revision in order to be effective. Crane must:

A) only send out a petition to fellow workers asking for a change in the procedures.

B) refuse supervisory responsibilities in writing until the company adopts an adequate system.

C) both submit a petition to fellow workers and inform the SEC.

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If Crane believes the current procedures are not adequate, Crane must refuse the supervisory responsibilities in writing until an adequate system is adopted. There is nothing in the Standards about circulating a petition.

1215

For many years, John Berger, CFA, has been a mentor of Bob Chennings, a family friend, who just earned the CFA designation. Berger is the CEO of a firm that just hired Chennings, but the hiring was done at a lower level so Berger and Chennings have no direct contact in the daily operation of the firm. With respect to Standard IV(C), Responsibilities of Supervisors, Berger:

A) assumes no extra responsibility with the hiring of Chennings.

B) must both develop written procedures concerning Chennings and routinely evaluate his performance.

C) must develop a set of written procedures to prevent violations derived from his mentoring Chennings.

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As a CEO, Berger is responsible for reasonable procedures being in place for the entire firm. Since Berger is not the supervisor of Chennings, however, Berger assumes no extra responsibility upon his hiring.

1215

Bill Fence, CFA, supervises a group of research analysts, none of whom have earned the CFA designation or are CFA candidates. On several occasions he has attempted to get his firm to adopt a compliance system to ensure that applicable laws and regulations are followed. However, the firm's principals have never adopted his recommendations. Fence should most appropriately:

A) decline in writing to accept supervisory responsibility until reasonable compliance procedures are adopted.

B) resign from the firm, because no other alternative will keep him in compliance with the Code and Standards.

C) take no further action, because by encouraging his firm to adopt a compliance system he has fulfilled his obligations under the Code and Standards.

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According to Standard IV(C), Responsibilities of Supervisors, if the member cannot discharge supervisory responsibilities because of a poor or nonexistent compliance system, the member should decline in writing to accept supervisory responsibility until the firm adopts an adequate system. The standard does not require Fence to resign.

1215

Martin Tripp, CFA, is vice-president of the equity department at Walker Financial, a large money management firm. Of the twenty analysts in his department for whom he has supervisory responsibility, eight are subject to CFA Institute Standards of Professional Conduct. Tripp believes that he cannot personally evaluate the conduct of the twenty analysts on a continuing basis. Therefore, he plans to delegate some of his supervisory duties to Sarah Green, who is subject to the Standards, and some to Bob Brown, who is not subject to the Standards. According to CFA Institute Standards of Professional Conduct, which of the following statements about Tripp's ability to delegate supervisory duties is most correct?

A) Tripp cannot delegate any of his supervisory duties to either Green or Brown.

B) Tripp can delegate some or all of his supervisory duties to Brown, even though Brown is not subject to the Standards.

C) Tripp can delegate some or all of his supervisory duties only to Green because she is subject to the Standards.

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Standard IV(C), Responsibilities of Supervisors, permits Tripp to delegate supervisory duties to Green, Brown, or both, but such delegation does not relieve Tripp of his supervisory responsibility.

1215

Which of the following is least likely a recommended procedure for supervisors and compliance officers to comply with Standard IV(C), Responsibilities of Supervisors?

A) Disseminate the firm's compliance procedures to employees.

B) Hold hearings when violations have occurred to determine the severity of the violations.

C) Incorporate a professional conduct evaluation into the employee's performance review.

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While a supervisor should respond promptly and investigate violations, there is no obligation to hold hearings when violations have occurred.

1215

Jess Green, CFA is the research director for Castle Investment, Inc., and has supervisory responsibility over eight analysts, including three CFA charterholders. Castle has a compliance program in place. According to CFA Institute Standards of Professional Conduct, which of the following is NOT an action that Green should take to adhere to the compliance procedures involving responsibilities of supervisors? Green should:

A) incorporate a professional conduct evaluation as part of the performance review only for the three CFA charterholders.

B) issue periodic reminders of the procedures to all analysts under his supervision.

C) disseminate the contents of the compliance program to the eight analysts.

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Green should incorporate a professional conduct evaluation as part of his review of all eight analysts under his supervision, not just the three CFA charterholders.

1215

Edwin McNeill, CFA, is a senior trader for Grey Securities. In his monthly review of his team’s activity, McNeill notices a series of suspicious trades by one of the traders. McNeill consults his manager, who agrees that these trades are a potential violation. McNeill informs the trader that her duties will be restricted while these trades are being investigated and refers the matter to Grey’s compliance officer for further action. McNeill has:

A) violated Standard IV(C) – Responsibilities of Supervisors by restricting the trader’s duties before the investigation is completed.

B) violated Standard IV(C) – Responsibilities of Supervisors by failing to prevent a potential violation.

C) not violated the Standards.

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By reviewing the employee’s conduct, restricting the employee’s activities while investigating a potential violation, and referring the matter to his manager and compliance officer, McNeill acted properly according to Standard IV(C) – Responsibilities of Supervisors. Wrongdoing by a subordinate does not mean the manager has violated Standard IV(C) as long as adequate procedures to detect and prevent violations are in place and the manager enforces them.

1215

Dixie Miller, CAIA, and Level II CFA candidate, heads the research department of a large brokerage firm. The firm has many analysts, some of whom are subjected to the CFA Institute Code of Ethics and Standards of Professional Conduct. If Miller delegates some of her supervisory duties, which statement best describes her responsibilities under the CFA Institute Code and Standards?

A) CFA Institute Standards prevent Miller from delegating supervisory duties to subordinates.

B) Miller's supervisory responsibilities do not apply to those subordinates who are not subjected to the CFA Institute Code and Standards.

C) Miller retains supervisory responsibilities for those duties delegated to her subordinates.

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Even though members may delegate supervisory duties, such delegation does not relieve members of the supervisory responsibility.

1215

Carmen Jorgensen, CFA, is the chief compliance officer for Dalton Financial Network, a regional brokerage firm. Dalton is divided into three regions, each of which has a regional compliance officer. Martin Lund, CFA, is the regional compliance officer for Dalton’s South Region.

Dalton has established procedures for proper allocation of trades to all clients. In October, Fred Curry, CFA, a broker in the South Region, misallocated a trade in favor of certain of his clients and to the detriment of others. It became evident that Lund had failed to review the trades on a timely basis as called for in Dalton’s Procedures Manual.

After an investigation, it was concluded that Curry violated the Code and Standards by failing to allocate trades properly and Lund violated the Code and Standards by failing to supervise appropriately. It should also conclude that Jorgensen:

A) did not violate the Code and Standards because adequate procedures were in place, even though they weren't being followed.

B) violated the Code and Standards by failing to adequately supervise her regional compliance officer, Lund.

C) violated the Code and Standards by failing to establish proper procedures.

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Standard IV(C) is violated when a supervisor does not take reasonable steps to implement an effective compliance system. Even though the system employed by Dalton may be adequate, Jorgensen is responsible to see that her regional compliance officers follow it.