Question 1 Christopher Lance, CFA, Chuck Cunningham, and Lucy Hunt, CFA, went to graduate school together and have remained close friends ever since. Lance and Hunt earned their CFA charters this past June and Cunningham is a Level III candidate. Lance, Cunningham, and Hunt have dinner every month at Cunningham’s country club, one of the most prestigious in the metropolitan area where they live. Lance was a well-respected research analyst covering the pharmaceutical industry at an international broker-dealer before accepting a job as Vice President, Investor Relations, at IMed, a large multinational pharmaceutical company that he covered as an analyst. Since he started coverage of IMed, Lance had consistently been named “top analyst” of the pharmaceutical industry by Investment Professional, the leading journal of the investment industry. In his new position at IMed, Lance is the principal spokesperson on the company’s financial performance and is responsible for developing and maintaining good relationships with the company’s shareholders, especially large institutional investors, and with approximately 30 research analysts who issue research reports and make recommendations about publicly-traded equity and debt securities. It is April 12th and Lance is preparing to conduct the next conference call following the release on April 15th of IMed’s quarterly earnings. Participating in the call will be Lance’s former colleague and good friend, Cunningham, and the other analysts who cover IMed. In addition, Hunt, a portfolio manager at Primary Pensions, a major institutional investor, has told Lance she will also be on the call. Primary Pensions has accumulated the largest single holding in IMed equity. Lance is concerned about this call because IMed’s president, Bill Norton, has just told the management team that sales of Mediplex, its new cancer drug, have begun to sag after rumors of serious side effects, including death, have hit the press. Norton told Lance that if sales continue to fall that this year’s earnings would be considerably less than the current consensus forecast. Norton is also concerned that the regulatory agency that approves the sale of drugs will repeal IMed’s license to market Mediplex. Cunningham is a research analyst at Lance’s former employer and has taken over coverage of IMed following Lance’s resignation. Until his promotion to Lance’s former position, Cunningham was a junior analyst covering the oil and gas industry. Although knowledgeable about fundamental financial analysis and equity valuation, he is unfamiliar with IMed and the pharmaceutical industry. Cunningham has been reviewing the past 5 years of IMed’s financial statements and Lance’s research reports in preparation for participating in IMed’s quarterly conference call to discuss its quarterly earnings release. Cunningham is under considerable pressure from his employer to meet or exceed Lance’s reputation and be rated “top analyst” by Investment Professional. His firm’s currently rates IMed as a “strong buy” based on Lance’s last research report. Based on his own preliminary analysis, Cunningham has a hard time justifying a “hold” recommendation. He is puzzled by several of the earnings adjustments that Lance made to achieve his target share price for IMed. He plans to ask Lance about these adjustments at their dinner on April 14th. Hunt has been managing a large cap equity portfolio at Primary Pensions for 5 years. Based almost exclusively on Lance’s buy recommendations in his research report, she began purchasing IMed several years ago just before it made several major acquisitions that contributed to its phenomenal growth and to her portfolio’s performance over the last 5 years. Since Lance moved to IMed, Hunt has been doing some due diligence and has become concerned that the growth of IMed’s earnings is overly dependent on sales of Mediplex. Based on her enthusiasm for IMed and her portfolio’s performance, other managers at Primary Pensions have also taken considerable positions in IMed to the extent that Primary Pensions is IMed’s largest single stockholder. If she is right, Hunt knows that she will need to reduce her portfolio’s holdings. Since Primary Pensions prohibits its employees from owning individual equity securities, Hunt has no personal investment in IMed. However, she had boasted about IMed’s performance to her mother and is aware that her mother’s investment club invested 10 percent of the club’s assets in IMed. Hunt is preparing her questions for the upcoming conference call and her exit strategy if the answers confirm her fears. Lance, Cunningham, and Hunt met for their regular monthly dinner on April 14th. Cunningham opens the after dinner discussion by questioning Lance about his new job and asks him if he and Hunt should anticipate any surprises at tomorrow’s conference call. Cunningham specifically asks Lance if IMed will meet or beat analyst expectations and the consensus earnings forecast. Lance responds that, under current securities laws, he is unable to discuss details of IMed’s performance with Cunningham and Hunt and that they’ll both be briefed with the other analysts and shareholders on tomorrow’s call. Shortly thereafter, the three friends say their good-byes. Hunt and Cunningham wish Lance well on the next day’s conference call. Part 1) What Standard governs Lance’s response to Cunningham’s question and is he in compliance?
| Standard | Compliance | A) | VII: Responsibilities as a CFA Institute Member or CFA Candidate | Yes | B) | III: Duties to Clients | No | C) | V: Investment Analysis, Recommendations, and Action | No | D) | I: Professionalism | Yes |
Part 2) Hunt’s concerns about IMed increased after her dinner with Cunningham and Lance. She believes that Lance would have told them if IMed’s earnings would meet analysts’ expectations. She is convinced that Lance’s failure to “look her in the eye” when he answered Cunningham’s question confirms her suspicions that IMed is in trouble and is determined to start selling Primary Pensions’ shares of IMed first thing in the morning. Based on her conclusions from the dinner with Lance and Cunningham, which of the following best describes the actions Hunt should take regarding IMed? A) Hunt cannot sell IMed and cannot encourage others to sell IMed. B) Hunt can sell the IMed shares in the Primary Pensions’ portfolio but cannot encourage her mother to sell the investment club’s shares. C) Hunt can tell her mother to sell the investment club’s shares of IMed but cannot sell the IMed shares in the Primary Pensions’ portfolio. D) Hunt can both tell her mother to sell the investment club’s shares of IMed and sell the shares in the Primary Pensions’ portfolio. Part 3) If Lance had disclosed material that was nonpublic information about the decline of sales of Mediplex and its effect on IMed’s earnings, Cunningham would have been least likely to be obligated to do which of the following? A) Inform the appropriate regulatory authority that Lance had violated securities laws. B) Not trade in shares of IMed. C) Make reasonable efforts to achieve public dissemination of material nonpublic information disclosed in a breach of duty. D) Not issue a research report based on the information communicated by Lance. Part 4) Dinners with Lance, Cunningham and Hunt at Cunningham’s exclusive country club usually cost more than $200 per person. When he and Lance worked for the same broker-dealer and Hunt was a client, Cunningham has always paid the bill. Which Standard will Lance violate if he continues to allow Cunningham to pay for dinner? A) Standard III(B), Fair Dealing. B) Standard IV(B), Additional Compensation Arrangements. C) Standard I(B), Independence and Objectivity. D) Standard VI(A), Disclosure of Conflicts. Part 5) Cunningham arrives in his office early on the day of the conference call. He has conducted an extensive analysis of IMed’s financial statements and has reviewed his assessment of Lance’s conclusions in the report that Lance issued before his departure. He regrets having asked Lance about IMed’s earnings at the previous night’s dinner and decides to ask Lance some very pointed questions in public during the conference call, especially regarding Lance’s inclusion of some significant non-recurring gains in operating income. Based on his own knowledge and experience, Cunningham doesn’t believe that Lance’s target price for IMed would be sustained. He decides that, if he doesn’t get clear answers to his questions on the call, he will recommend to client’s in his research report that IMed’s rating drop to “hold”. Cunningham’s research report and recommendation is sent to all of his firm’s clients and is not directed to a specific client. In conducting his analysis and developing his recommendation, which of the following requirements of Standard V, Investment Analysis, Recommendations and Actions, would Cunningham least likely be concerned with? A) Exercise diligence and thoroughness in making investment recommendations. B) Have a reasonable and adequate basis, supported by appropriate research and investigation, for such recommendations. C) Clearly differentiate fact from opinion in making recommendations. D) Consider the appropriateness and suitability of investment recommendations for each client. Part 6) Lance is very nervous before the conference call. Norton, IMed’s president, has told him that he must not disclose the decline in sales of Mediplex. During the call, Hunt asks Lance whether the rumors of the side effects of Mediplex are true and whether these rumors have negatively impacted sales. Lance assures Hunt that Mediplex sales are strong and that IMed is confident that sales will continue to rise for the remainder of the year. Which of the following best describes Lance’s actions when he stated that sales of Mediplex were strong? A) Lance complied with Standard IV(A), Loyalty to Employer. B) Lance violated Standard III(B), Fair Dealing. C) Lance violated Standard I(D), Misconduct. D) Lance complied with Standard I, Professionalism.
[此贴子已经被作者于2008-5-17 17:01:50编辑过] | 
发表于 2008-5-17 16:59
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