JonnyKay

Which of the following does NOT violate Standard I(D), Misconduct? Roland Lawson, a financial analyst:

A) committed perjury in connection with a lawsuit against his firm.

B) drinks excessively during business meetings with clients and returns to work under the influence of alcohol.

C) is arrested for participating in a nonviolent protest.

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Any professional conduct that involves dishonesty, fraud, or deceit is a violation of Standard I(D), Misconduct. One must refrain from activities that reflect poorly on integrity, reputation, trustworthiness, or professional conduct. The focus of the Standard is on professional, not personal, conduct.

JonnyKay

Nancy Hall, a candidate in the CFA program, is an analyst for a mutual fund. As part of her job she makes company visits to interview executives. On a recent trip she stayed with her sister instead of at a hotel. In her expenses Hall included a hotel charge of $100, which was less than the amount allowed by her employer. After receiving a check for her expenses, Hall disclosed to her supervisor that she had stayed with her sister instead of at a hotel. She also returned the $100 to her employer. According to CFA Institute Standards of Professional Conduct, which of the following statements best describes Hall's professional conduct?

A) Hall did not engage in professional misconduct because she eventually disclosed this information and returned the $100 to her employer.

B) Hall did not engage in professional misconduct because she did not meet all of the requirements to use the CFA designation.

C) Hall engaged in professional misconduct.

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Hall engaged in professional misconduct because her act involved dishonesty, fraud, and de

JonnyKay

Hillary Jones, CFA, sometimes promises clients that she will allocate more shares from oversubscribed initial public offerings (IPOs) than she knows she will actually be able to deliver. Her employer has reprimanded her in the past for similar behavior. Which of the following statements is least accurate regarding Jones' behavior?

A) Her actions are a violation of the Standards only if prosecution results in a felony conviction.

B) Her actions are a violation of the standard concerning misrepresentation, because she promised something she knew the firm could not deliver.

C) Her actions are a violation of the standard concerning professional misconduct because she deceived her clients.

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Jones violated Standard I(C) Misrepresentation by promising clients she would allocate more shares than she could deliver. Her actions also violated Standard I(D) Misconduct pertaining to acts of dishonesty, fraud, or deceit which reflects adversely on a member's professional reputation, integrity, or competence. She also violated the Code of Ethics which states that members and candidates must act with integrity, competence, diligence, respect, and in an ethical manner with the public, clients, and prospective clients. The specific punishment for the actions is not relevant.

JonnyKay

Hillary Jones, CFA, sometimes promises clients that she will allocate more shares from oversubscribed initial public offerings (IPOs) than she knows she will actually be able to deliver. Her employer has reprimanded her in the past for similar behavior. Which of the following statements is least accurate regarding Jones' behavior?

A) Her actions are a violation of the Standards only if prosecution results in a felony conviction.

B) Her actions are a violation of the standard concerning misrepresentation, because she promised something she knew the firm could not deliver.

C) Her actions are a violation of the standard concerning professional misconduct because she deceived her clients.

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Jones violated Standard I(C) Misrepresentation by promising clients she would allocate more shares than she could deliver. Her actions also violated Standard I(D) Misconduct pertaining to acts of dishonesty, fraud, or deceit which reflects adversely on a member's professional reputation, integrity, or competence. She also violated the Code of Ethics which states that members and candidates must act with integrity, competence, diligence, respect, and in an ethical manner with the public, clients, and prospective clients. The specific punishment for the actions is not relevant.

JonnyKay

An investment advisor takes a trip for which his firm will pay the expenses. Upon his return he alters some of the numbers on restaurant receipts to inflate the expenses by $64. Is this a violation of Standard I(D)?

A) No, if such a crime carries less than a one-year prison term.

B) Yes, because the amount involved is over $50.

C) Yes, because it reflects adversely on the charterholder’s professional reputation.

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Professional conduct involving dishonesty, fraud, or deceit is a direct violation of Standard I(D), Misconduct.

JonnyKay

Trude Front, CFA, is a portfolio manager. While in the normal course of her duties, she happens to overhear material non-public information concerning the stock of VTT Bowser. She purchases several exchange traded funds which contain VTT Bowser, while shorting similar exchange traded funds which do not contain VTT Bowser. This is most likely:

A) a violation of Standard II(A) "Material Non-Public Information."

B) not a violation of Standard II(A) "Material Non-Public Information."

C) only a violation of Standard II(A) "Material Non-Public Information" because Front is simultaneously shorting the funds which do not contain VTT Bowser.

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This is a violation of Standard II(A) "Material Non-Public Information" irrespective of whether Front is simultaneously shorting the funds which do not contain VTT Bowser. Her trades are motivated by material non-public information.

JonnyKay

Which one of the following constitutes the illegal use of material nonpublic information?

A) Trading on information your sister, the firm's attorney, told you over dinner.

B) Trading based on your analytical review of the firm's future prospects.

C) Trading immediately after attending the firm's annual shareholders’ meeting.

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Members may not trade on material nonpublic information; therefore, the information conveyed by the firm’s attorney may not be used by a member for trading purposes.

JonnyKay

Hunter Harrison, CFA, is president and chief investment officer (CIO) of Ironclad Investments, an investment adviser and pension consultant for medium and large corporate pension clients. Ironclad recently hired a compliance officer to update its compliance manual, which follows the CFA Institute Code and Standards. Harrison serves as a director on several non-profit and corporate boards of directors, some of which have their pension assets managed by Ironclad. Harrison oversees Ironclad’s research analysts and portfolio managers, including Michelle Myers, who completed Level II of the CFA examination last year but has not registered for Level III. Myers is a portfolio manager who regularly meets with clients and prospects. Myers is also a partner in a software company that sells retirement and benefit administration services to institutional clients, some of which are also clients of Ironclad. During her correspondence with prospects and clients, Myers includes reference to her status as a “Level III CFA candidate” in her biographical background to increase her prominence in the industry.Regarding Myers' references of her status as a candidate in the CFA program, what Standard governs these actions and is she in compliance?

A) Standard VII: Responsibilities as a CFA Member or CFA Candidate. Compliance: No.

B) Standard I: Professionalism. Compliance: No.

C) Standard III: Duties to Clients. Compliance: No.

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The actions of Myers are covered under Standard (VII)—Responsibilities as a CFA Member or CFA Candidate. Standard VII(B)—Reference to CFA Institute, the CFA designation, and the CFA Program requires that CFA candidates appropriately reference their participation in the CFA program, clearly stating their candidate status and not implying the achievement of any type of partial designation. Importantly, to be considered a candidate an individual must be registered to take the next scheduled exam. (Study Session 1, LOS 2.a,b)

JonnyKay

All of the following most likely apply to Myers’ participation as a partner in the software company EXCEPT:

A) Standard IV (B.4)—Priority of Transactions.

B) Standard IV (B.5)—Preservation of Confidentiality.

C) Standard III (C)—Disclosure of Conflicts to Employer.

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Standard VI(B)—Priority of Transactions most likely does not apply to Myers’ participation in the software company. Standard VI(B) covers priority over transactions in securities or other investments for clients and employers to prevent any instances of “front-running” for the benefit of the member. Myers’ software business is not transaction-oriented, and there is no information that describes any instances of the software company having priority in securities transactions over Ironclad or its clients. (Study Session 1, LOS 2.a,b)

JonnyKay

As part of Ironclad’s portfolio management activities on behalf of clients, Harrison and Myers maintain relationships with third party soft dollar providers and commission recapture brokers.

• Better Trading Brokerage (“Better Trading”), one of Ironclad’s top ten brokers and soft dollar providers, has offered Harrison two round-trip airline tickets anywhere in the U.S. in appreciation for their two-year relationship with Ironclad.
• One of Harrison’s clients, Worldwind Travel (“Worldwind”), who participates in commission recapture, has offered Harrison two round-trip airline tickets anywhere in the U.S. or Europe in appreciation for their two-year relationship with Ironclad.

Which of the following best describes Harrison’s actions under the Code and Standards? Harrison:

A) can accept the offer from Worldwind, but cannot accept the offer from Better Trading.

B) can accept the offer from both Better Trading and Worldwind.

C) cannot accept the offer from either Better Trading or Worldwind.

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Subject to additional disclosure, Harrison can accept the offer from Worldwind, but cannot accept the offer from Better Trading. Harrison’s actions are covered by Standard I(B)—Independence and Objectivity. Under Standard I(B), members shall use reasonable care and judgment to achieve and maintain independence and objectivity in their professional activities. As such, Harrison’s acceptance of the offer from Better Trading could be perceived to compromise his independence and objectivity on behalf of his clients, as the broker may be trying to influence Harrison to increase the amount of trading that Ironclad executes on behalf of clients. Since Better Trading is not a client of Ironclad, and its offer could negatively influence Harrison’s actions on behalf of Ironclad’s clients in violation of the Standard, the offer should be refused. The offer from Worldwind, who is one of Ironclad’s clients, if accepted, does not cause Harrison to violate Standard I(B). Gifts from clients are distinguishable from gifts from third parties seeking to influence the activities of an investment manager. Worldwind’s offer to Harrison may be accepted, provided it is disclosed to Ironclad in writing as additional compensation or benefits. Standard IV(B)—Additional Compensation Arrangements requires members to disclose in writing any additional compensation or other benefits received for their services in addition those provided by their employer. Harrison is obligated to disclose the offer and abide by any further requirements set forth by Ironclad prior to accepting the tickets. (Study Session 1, LOS 2.a,b)