Q1. Glenarm Case Study (Refer to CFA Institute's Standards of Practice Casebook for details.)

Peter Sherman, CFA, has recently joined Glenarm Company after spending 5 years at Pearl Investment Management. He is responsible for identifying potential Latin American investments. Previously, Sherman held jobs as consultant for many Latin American companies and had plans to continue such consulting jobs without disclosing anything to Glenarm.

After resigning, but before leaving his employment at Pearl, Sherman had encouraged Pearl customers to move their accounts to Glenarm. He contacted accounts Pearl had been soliciting for business. He also contacted potential clients that Pearl had rejected in the past as too small or incompatible with the firm's business. Furthermore, he convinced several of Pearl's clients and prospects to hire Glenarm after he joined the company. He also identified materials from Pearl to take with him, such as:

1.       sample marketing presentations he had prepared

2.       computer program models for stock selection

3.       research materials on companies he had been following

4.       a list of companies recommended by Sherman for potential investment, but which were rejected by Pearl

5.       news articles for potential research ideas

Under the obligation to act in the best interest of the employer while still an employee, Sherman's actions constitute the following violations except:

A)   solicitation of potential clients of Pearl--violation of Standard IV(A).

B)   leaving Pearl to join a possible competitor--violation of Standard IV(A), Loyalty to Employer.

C)   solicitation of clients while still employed by Pearl--violation of Standard IV(A).

Q2. Glenarm Case Study (Refer to CFA Institute Standards of Practice Casebook for details.)

Peter Sherman, CFA, has recently joined Glenarm Company after spending 5 years at Pearl Investment Management. He is responsible for identifying potential Latin American investments. Previously, Sherman held jobs as a consultant for many Latin American companies and had plans to continue such consulting jobs without disclosing anything to Glenarm.

After resigning, but before leaving his employment at Pearl, Sherman had encouraged Pearl customers to move their accounts to Glenarm. He contacted accounts Pearl had been soliciting for business. He also contacted potential clients that Pearl had rejected in the past as too small or incompatible with the firm's business. Furthermore, he convinced several of Pearl's clients and prospects to hire Glenarm after he joined Glenarm. He also identified materials from Pearl to take with him, such as,

1.       sample marketing presentations he had prepared,

2.       computer program models for stock selection,

3.       research materials on companies he had been following,

4.       a list of companies recommended by Sherman for potential investment which were rejected by Pearl,

5.       news articles for potential research ideas.

Which of the following statements concerning Sherman's actions is TRUE?

A)   Sherman did not violate any Standard by taking away the news articles from his previous employer, Pearl, for potential research ideas.

B)   Sherman did not violate Standard IV(A) by soliciting clients that were rejected by Pearl either because they were too small or unsuitable as long as winning their business did not adversely affect Pearl.

C)   Sherman did not violate Standard IV(A) since members can engage in independent consulting practice as long as their employer policy does not specifically prohibit it.

Q3. Sherman's attempt to lure away clients from Pearl while he was still employed at Pearl is:

A)   not a violation of Standard V(A) because it was conducted "after hours" on Sherman's own time.

B)   a violation of Standard IV(A) because it undermined Pearl's business and its profit opportunities and caused damage to Pearl's business.

C)   not a violation of Standard IV(A) because they would have followed Sherman to his new firm anyway, and no harm to Pearl was done as a result.

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