Reading 2-I: Standards of Professional Conduct & Guidance 四步曲

1215

Session 1: Ethical and Professional Standards
Reading 2-I: Standards of Professional Conduct & Guidance: Professionalism

LOS C.: Misrepresentation.

 

 

Marc Randall, CFA, is an investment analyst. During a meeting with a potential client, Randall's boss states that, "You can be sure our investments will always outperform Treasury Bonds because of our fine research staff members, like Marc." Randall knows that this statement is:

A) a violation of the Standard concerning prohibition against misrepresentation.

B) a violation of fiduciary duties owed to clients under the Standards.

C) not in violation of the Code and Standards.

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Under Standard I(C), members are forbidden from guaranteeing a specific rate of return on volatile investments. Therefore, the statement is in violation of the Standard.

1215

Ellen Miamoto, CFA, is preparing a research report on an employment agency, Temp Help, Inc. She includes in her report:

• A copy of a paragraph from a report by the Wall Street research firm of Benson Smith.
• A graph Miamoto has modified based on an original graph prepared by Gordon Thompson that was published in the Wall Street Journal.
• A chart of national employment trends that Miamoto created using data from the U.S. government's Bureau of Labor Statistics.

In her report, Miamoto must identify and acknowledge:

A) Benson Smith, Gordon Thompson, and the Bureau of Labor Statistics.

B) Benson Smith only.

C) Benson Smith and Gordon Thompson.

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Standard I(C) Misrepresentation requires members to acknowledge and identify the author, publisher, or source of material they use in substantially the same form as the original. The use of Benson Smith’s original material and Gordon Thompson’s modified material must be acknowledged. The exception to this requirement is information from recognized financial and statistical reporting services, such as the government agencies that compile national economic statistics.

1215

A CFA charterholder gathers the closing prices of a security from a widely read publication. The charterholder uses the data as part of a report she is preparing and fails to report the data source in the report. This is:

A) a violation of Standard I(C).

B) not a violation of Standard I(C) if the data cannot be gathered from several public sources.

C) not a violation of Standard I(C) if the data can be gathered from several public sources.

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Since the security prices represent factual information that can be verified from several sources, there is no violation. It could have been a violation had the information been exclusively published by the source.

1215

Which of the following is most likely permitted under Standard I(C), Misrepresentation?

A) Including an exhibit of the current yield curve in a report to a client without stating its source.

B) Using excerpts from reports prepared by others without acknowledgement.

C) Citing quotes attributed to "investment experts" without specific reference.

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The current yield curve is factual information that is available from many recognized financial or statistical reporting services.

1215

A money manager works for a full-service brokerage firm. After meeting with a new client and gathering all relevant information, the money manager says that she thinks her firm can perform all the financial services the new client needs. With respect to Standard I(C), Misrepresentation, this:

A) may not be a violation if the representation was made orally.

B) may not be a violation if the manager's opinion is based upon the factual information gathered.

C) is a violation because she cannot make statements like this under any circumstances.

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There is no violation if the opinion is based upon the factual information gathered and the firm’s actual capabilities. This is true whether or not the representation was written, oral, or electronic. None of the other choices are correct.

1215

A copyrighted technique for measuring the downside risk of an investment has just been revealed to the public. If an analyst adopts the technique, he must cite the use of the technique in all research reports in which the technique is used EXCEPT:

A) if the analyst does not modify the technique at all.

B) Neither of these answers provide grounds for an exception.

C) if the analyst uses reasonable care and verifies that the technique provides superior results.

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Neither of the answers in this question provide adequate grounds for not citing the source of the methodology. Although “verifying” the technique is a good idea and congruent with the Code and Standards, the analyst still needs to cite the use of the copyrighted technique even after modifying it slightly to avoid violation of Standard I(C), Misrepresentation.

1215

According to CFA Institute Standards of Professional Conduct, which of the following is NOT a form of plagiarism?

A) Citing specific quotations supposedly attributable to "leading analysts" and "investment experts" without specific reference.

B) Presenting statistical estimates of forecasts prepared by others with the source identified, but without qualifying statements or caveats that may have been used.

C) Using factual information published by recognized financial and statistical reporting services or similar sources without an acknowledgment.

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Standard I(C) provides that "factual information published by recognized financial and statistical reporting services or similar sources" may be used without an acknowledgment.

1215

Which of the following is NOT expressly prohibited by Standard I(C), Misrepresentation?

A) providing information on guaranteed investment products.

B) misrepresenting the services a member is capable of performing.

C) misrepresenting a member’s academic or professional credentials.

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Misrepresentation of qualifications, academic and professional credentials and services that can be performed by the firm are all expressly prohibited by Standard I(C).

1215

At the time of its initial public offering (IPO), a mutual fund is invested primarily in junk bonds. As part of its strategy, it is also invested in some zero-coupon U.S. Treasury bonds. The amount of the investment in the Treasury bonds is such that their maturity value equals 90% of the current value of the fund. Which of the following may a CFA Institute member say to her clients concerning the fund at issuance?

A) Since the fund is backed by the U.S. government, you know you will get your money back.

B) A CFA Institute member may not make either of these statements.

C) The fund is virtually default risk free.

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Standard I(C), Misrepresentation, prohibits making statements that mention a guarantee of returns or misrepresent the true nature of the investment.

1215

Jamie Pyles, a portfolio management trainee for a money management firm, is trying to create a client base. He phones prospective clients, telling them that he is a portfolio manager. He informs prospective clients that based on the last five years of performance of his firm, he can guarantee the client at least a 75% return. He informs them that his firm can provide all of the services that they will ever need. What is the minimum number of misrepresentations Jamie has made to the prospective clients in violation of Standard I(C), Misrepresentation?

A) 3.

B) 5.

C) 2.

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There are at least three misrepresentations. First, that Jamie is a portfolio manager, when he's really a trainee. Second, that the firm can provide all of the services they will ever need. Third, that he can guarantee a 75% return.