chunty

A member who suspects that a colleague is violating the law should most appropriately:

A) consult with the company counsel to determine if in fact a law is being violated.

B) report the illegal activity to the appropriate regulatory agency.

C) report the illegal activity to CFA Institute Professional Conduct Program for action.

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Standard I(A), Knowledge of the Law, applies in this situation. According to this Standard, members shall not knowingly participate or assist in, and must dissociate from, any violation of laws, rules, or regulations.
When members suspect a client or a colleague of planning or engaging in ongoing illegal activities, members should take the following actions:

• Consult counsel to determine if the conduct is, in fact, illegal.
• Disassociate from any illegal or unethical activity. When members have reasonable grounds to believe that a client’s or employee’s activities are illegal or unethical, the members should disassociate from these activities and urge their firm to attempt to persuade the perpetrator to cease such activity.

Note:  The Code and Standards do not require that members report legal violations to the appropriate governmental or regulatory organizations, but such disclosure may be prudent in certain circumstances.

chunty

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.

chunty

CFA Institute believes:

A) that a maximum level of professional responsibility and conduct dictates that members be aware of and comply with laws, rules, and regulations governing their conduct.

B) that a minimum level of professional responsibility and conduct dictates that members be aware of and comply with laws, rules, and regulations governing their conduct.

C) that firms should comply with all domestic laws and regulations and that these laws also govern behavior in foreign markets, regardless of foreign laws and requirements.

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CFA Institute’s Code and Standards dictate a minimum level of conduct. Standards should not be based on ethics of upper management and the board of directors of a company. Firms must comply with the strictest applicable standards, whether they be foreign or domestic laws and regulations.

chunty

Joan Platt, CFA, operates an investment advisory service in New York but maintains an office in Xania. Xania recently established a stock market, which is not very efficient. None of the Xanian stocks trade in the U.S. market. Xania legally permits the use of material inside information. Platt believes that using inside information would help her compete against other Xanian investment advisors and also help some of her Xanian clients reach their investment objectives. Platt is considering adopting local investment practices in Xania. According to CFA Institute Standards of Professional Conduct, Platt may:

A) use material inside information because Xania legally permits this practice.

B) not use material inside information.

C) use material inside information, but only after notifying CFA Institute.

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Because applicable law involving material inside information is less strict than the Code and Standards, Platt must adhere to the Code and Standards. Standard II(A) prohibits against use of material nonpublic information.

chunty

Which of the following statements about the CFA Institute Code and Standards is most accurate? The Code and Standards:

A) require members to persuade the perpetrator to cease illegal activities.

B) do not require that members report legal violations to the appropriate governmental or regulatory organization.

C) prohibit members from accepting gifts that create a conflict with their employer's interest.

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The Code and Standards do not require members to report violations to legal authorities, but such disclosure may be prudent or required in certain circumstances. They do not require members to quit their jobs or to persuade violators to cease illegal activities. They do require that members report the activities to the appropriate person(s) in their own firm and disassociate themselves from the illegal actions. Members must obtain written permission to accept gifts that create a conflict with their employer's interest.

chunty

Robe Advisory Services operates an office in San Francisco, where it manages portfolios for its clients based in the United States. The firm also maintains an office in Tokyo, where it employs Sam Lee, CFA who researches Japanese stocks. According to the CFA Institute Standards of Professional Conduct, Lee is required to maintain knowledge of and comply with all applicable laws, rules, and regulations in:

A) both the U.S. and Japan, but not the CFA Institute Standards of Professional Conduct.

B) both the U.S. and Japan and the CFA Institute Standards of Professional Conduct.

C) Japan, but not the U.S., and the CFA Institute Standards of Professional Conduct.

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To abide by the Standards, employees who work for foreign-based firms are required to apply the stricter of the foreign (here, U.S.) law, the domestic (here, Japanese) law, or CFA Institute standards.

chunty

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.

chunty

Mega Securities, a multinational investment advisor based in the United States, employs the following analysts who practice in multiple jurisdictions.

• Melissa Black, CFA, resides in Country N, which has no securities laws or regulations, but does business in Country L, which has securities laws and regulations that are less strict than the Code and Standards.
• Tom White, a CFA Institute member, resides in Country L, but does business in Country S, which has securities laws and regulations that are stricter than the Code and Standards.

According to the CFA Institute Code and Standards, which of the following statements about Black and White is CORRECT?

Black must adhere to the

White must adhere to the

A) law of Country L law of Country S

B) Code and Standards law of Country S

C) law of Country N law of Country L

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Because the applicable law in Country L is less strict than the Code and Standards, Black must adhere to the Code and Standards. Because the applicable law is stricter than the Code and Standards, White must adhere to the more strict applicable law of Country S.

chunty

Mega Securities, a multinational investment advisor based in the United States, employs the following analysts who practice in multiple jurisdictions.

• Melissa Black, CFA, resides in Country N, which has no securities laws or regulations, but does business in Country L, which has securities laws and regulations that are less strict than the Code and Standards.
• Tom White, a CFA Institute member, resides in Country L, but does business in Country S, which has securities laws and regulations that are stricter than the Code and Standards.

According to the CFA Institute Code and Standards, which of the following statements about Black and White is CORRECT?

Black must adhere to the

White must adhere to the

A) law of Country L law of Country S

B) Code and Standards law of Country S

C) law of Country N law of Country L

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Because the applicable law in Country L is less strict than the Code and Standards, Black must adhere to the Code and Standards. Because the applicable law is stricter than the Code and Standards, White must adhere to the more strict applicable law of Country S.

chunty

Shortly after becoming employed by Valco & Co., an investment banking firm, Stan McDowell, CFA, learns that most of Valco's initial public offerings (IPO) are really effected in order to profit management via price manipulation of the shares. McDowell observes an illegal act, sanctioned by senior management, in progress and refuses to sign off on his responsibility. Instead, McDowell takes the documentation to his supervisor and tells him he should sign it in his place. This action is:

A) an overreaction. Senior management's sanctioning of the act absolves McDowell from his ordinary responsibility as a CFA Institute member.

B) a suitable reaction, and he is in compliance with the Code and Standards.

C) a violation of the Code and Standards since he is required not to knowingly participate or assist in such an act.

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McDowell, by his action in taking the documentation to his supervisor, is knowingly participating in and/or assisting in an illegal act. This is clearly prohibited under Standard I(A), and he is in violation of the Standard.