Mechanic

Sometimes a CFA Institute member simply feels a law has been violated by his firm, and sometimes the member knows a law has been violated. Which of the following pairs of guidelines is CORRECT with respect to the first step a member should take in each case? The member should first contact:

A) the firm's counsel if he feels a law has been violated and the SEC if he knows a law has been violated.

B) his supervisor in the firm if he feels a law has been violated and contact the firm's counsel if he knows a law has been violated.

C) the firm's counsel if he feels a law has been violated and contact his supervisor if he knows a law has been violated.

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Standard I(A) says that when a member feels a law has been broken, the member should seek advice from the firm’s counsel. If the member feels the advice is unbiased and competent, the member should follow it. If the member knows a law has been violated, the member should contact a supervisor.

Mechanic

Benito Salvatore, CFA, is licensed in the established country of Oldworld but has clients and makes investments in the emerging country of Newworld. The regulations of Oldworld prohibit licensed investment professionals from taking gifts or gratuities in any amount from vendors or persons connected with potential investments. The laws of Newworld are silent on this issue. Unsolicited, Salvatore is offered a vase worth US $75 by a Newworld trust company and a bronze statue worth US $200 by a Newworld company that Salvatore is considering as a potential investment.Salvatore is:

A) permitted to accept both gifts.

B) not permitted to accept either gift.

C) permitted to accept the vase but not the statue.

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Under Standard I(A), Salvatore must, as a CFA charterholder, apply the CFA Institute Code and Standards or the controlling law, whichever is stricter. In this instance the stricter laws of Oldworld, where Salvatore is licensed, apply to prohibit the gifts, even though the gifts are offered in Newworld.

Mechanic

Mary Kim practices in the economically advanced country of Oldasia as well as in the emerging market country of Newasia. By regulation, Oldasia prohibits licensed investment advisors from trading in securities ahead of their clients. Newasia has no laws or regulations in this area. According to the CFA Institute Standards of Professional Conduct, Kim may:

A) not trade ahead of her clients in either country.

B) trade ahead of her clients in Newasia only.

C) trade simultaneously with her clients in Newasia only, as long as she has made full disclosure to her clients that she reserves the right to do this.

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Under Standard I(A) Knowledge of the Law must apply the CFA Institute Code and Standards or the controlling law, whichever is stricter. Because Standard VI(B) Priority of Transactions requires members to put client trades ahead of their own transactions, Kim must follow the standard in the absence of governing law or where the law is less strict than the Standard.

Mechanic

John Martin, an analyst, discovers that Jurix Co. has knowingly misstated information in its prospectus. To comply with CFA Institute’s Code of Ethics and Standards of Professional Conduct, Martin's most appropriate course of action is to:

A) report the finding to the appropriate supervisory person in his firm.

B) call the appropriate regulatory agency and report the action.

C) resign from his job in order to disassociate from the potentially illegal activity.

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To comply with the Code and Standards, John should notify the appropriate supervisory person in his firm of the violation.

Mechanic

Which of the following is a CORRECT statement of a member's duty under the Code and Standards?

A) A member who trades securities in a country with less strict laws, rules, regulations, or customs may follow those laws if he discloses this information to his client.

B) A member is required to comply only with applicable local laws, rules, regulations, or customs even though the CFA Institute code and Standards may impose a higher degree of responsibility or a higher duty on the member.

C) In the absence of specific applicable law or other regulatory requirements, the Code and Standards govern the member's actions.

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Members are always, at a minimum, subject to the Code and Standards.

Mechanic

Deloris Johnson, CFA, suspected that her intern, who was working without pay at her brokerage firm, had violated a federal securities regulation. Johnson discussed the matter with her company's legal counsel who said that the intern's conduct was illegal. According to the CFA Institute Code and Standards of Professional Conduct, Johnson can dissociate herself from this illegal activity by:

A) transferring supervision of the intern to another person.

B) telling her intern to stop such conduct.

C) reporting the activity to the appropriate authorities.

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Johnson can dissociate herself from the illegal activity by reporting the activity to the appropriate authorities. However, the Code and Standards do not require that she report legal violations to the appropriate governmental or regulatory organizations, but such disclose is prudent in this circumstance.
By transferring the intern to another supervisor this may not solve the problem of the illegal activity occurring and the company would still be held liable for it.

Mechanic

Bob Smith, CFA, is an outside board member of Atlantic Technologies, but is not paid by the firm for his services. An employee at Atlantic informs Smith that Atlantic has improperly timed the booking of contracts to achieve the desired quarterly financial results. The misleading financial statements would turn losses into profits. Smith confers with the firm's legal counsel who indicates that this conduct is, in fact, illegal. Smith urges Sharon White, Atlantic's chief operating executive, to change the financial statements, but she refuses to do so. According to CFA Institute Standards of Professional Conduct, which of the following statements best describes what Smith should do in this situation?

A) Smith should immediately make CFA Institute aware of the situation at Atlantic.

B) Smith should promptly disassociate himself from Atlantic's actions by resigning as a director or by reporting the activities to the appropriate authorities.

C) Smith should wait until the next board meeting, which is scheduled in two weeks, to make other board members aware of the situation.

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Smith should disassociate from any illegal activity by resigning as a director or by reporting the activities to appropriate authorities. Inaction combined with continuing association with Atlantic's illegal conduct may be construed as participation, or assistance, in the illegal conduct.

Mechanic

The CFA Institute Standards of Practice Handbook requires CFA Institute members to do all the following EXCEPT:

A) receive written permission from both their employer and outside clients to engage in investment consulting outside the firm.

B) to disclose in writing to the proper regulatory authority all observed violations of the securities laws and regulations.

C) to inform employer, clients, and potential clients of benefits received for recommending products or services.

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Members are not required to report violations of others to regulatory authorities, either verbally or in writing, but such reporting may be prudent.

Mechanic

For an employee with the CFA designation who works for a firm, which of the following is NOT necessary to meet the requirements of the Code and Standards?

A) It is recommended that their employer is aware of the Code and Standards.

B) Recommend notifying their employer of their responsibility to follow the Code and Standards.

C) Deliver a copy of the Code and Standards to their employer.

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It is no longer required but recommended that CFA members and candidates notify their employer that they are required to follow the Code and Standards.

Mechanic

CFA Institute members should encourage their employers to do all of the following EXCEPT:

A) make clear that dishonest personal behavior reflects poorly on the profession.

B) conduct background checks on potential employees to ensure that they are of good character and eligible to work in the investment industry.

C) require employees to write personal ethics statements.

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There is no reason to have employees write personal ethics statements. CFA Institute encourages all of the other actions.