BelalM

My .02:
1) I believe you are correct with the “catch phrase” in the second part of answer D. Very rarely (if ever) do you have to report to CFA Institute. Most scenarios have you reporting to your supervisor or compliance/legal counsel if something comes up. The other answers also seem like that that might be required of you in the future as a result of this situation. The act is not illegal but you’re bound by the Code of Ethics anyway. The Code states that you should disassociate from the activity if it continues, and in extreme cases you may have to resign if nothing is being done to accomodate your situation.
2) Thinking that the PM should have gotten written consent from his/her employer before accepting this gesture from the client. As is, an outside third-party observer might see this as a violation of independence/objectivity, since the PM may show favourtism toward this client’s portfolio in the future. To clarify your question, any time a CFA candidate/member violates the Code of Ethics, they also violate Standard I(A) Knowledge of the Law, since they knew about what they should/shouldn’t be doing.
If any part of my logic here is flawed feel free to pick the solutions apart