kasinkei

Ten years ago Lance Tuipuloto, CFA, met with Horace and Nichole Scadden to discuss potential investments, but these prospects never became clients. Tuipuloto now wants to destroy the records from the meeting with the prospective clients. Is this action in compliance with Standard V(C)?

A) Yes; the prospects never became clients.

B) No.

C) Yes; A sufficient number of years have passed since the meeting.

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According to Standard V(C), Record Retention, the files may be destroyed. The CFA Institute recommends keeping all records for at least 7 years. Given that more than 7 years have passed since Tuipuloto‘s meeting with the Scaddens, it is not against Standard V(C) to get rid of the records from that meeting.

kasinkei

Four months ago Lance Tuipuloto, CFA, analyzed three equity securities for Janet Scadden. However, Scadden decided to invest in bonds instead. Tuipuloto now wants to destroy the records from the stock analysis. Is this action in compliance with Standard V(C)?

A) Yes. Tuipuloto only needs to keep the records for 90 days.

B) No.

C) Yes. Tuipuloto does not need to keep the records because his advice was not followed.

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According to Standard V(C), Record Retention, the files should be not be destroyed. The CFA Institute recommends keeping all records for at least 7 years.

kasinkei

Lee Hurst, CFA, is an equity research analyst who has recently left a large firm to start independent practice. He is able to re-create several of his previous recommendation reports from memory, based on sources obtained at his previous employer. He publishes the reports and obtains several new clients. Hurst is most likely:

A) in violation of Standard V(C) “Record Retention.”

B) not in violation of any Standard.

C) in violation of Standard V(A) "Diligent and Reasonable Basis."

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Hurst is most likely in violation of Standard V(C) "Record Retention" because the supporting documentation is unavailable. He needs to recreate the supporting records based on information gathered through public sources or the covered company.

kasinkei

When an analyst makes an investment recommendation, which of the following statements must be disclosed to clients?

A) An employee of the firm holds a directorship with the recommended company.

B) Both of these statements must be disclosed to clients.

C) The firm is a market maker in the stock of the recommended company.

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Both of these items are explicitly listed in the discussion of Standard VI(A), Disclosure of Conflicts.

kasinkei

A CFA Institute member makes a recommendation of a stock in which his firm has a material ownership. He does not know of the material ownership at the time of the recommendation. A day later, he learns of the material ownership and immediately sends out an addendum informing clients of that fact. With respect to Standard VI(A), Disclosure of Conflicts, and Standard V(A), Diligence and Reasonable Basis, this is:

A) a violation of Standard VI(A), only.

B) a violation of both Standards.

C) not a violation of either Standard.

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The member apparently had not exercised due diligence in making the recommendation if he does not know of the material ownership by his own firm. Even if the member did not know of the material ownership, Standard VI(A) was violated with the release of the recommendation.

kasinkei

Phil Trobb, CFA, is preparing a purchase recommendation on Aneas Lumber for his research firm. All of the following are potential conflicts of interest EXCEPT:

A) Trobb's research firm has a large stake of ownership in Aneas Lumber.

B) Aneas hires Trobb as a consultant to analyze Aneas' financial statements.

C) Trobb's cousin repairs machines for Aneas.

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Standard VI(A) defines what constitutes a conflict of interest with regard to clients, prospective clients, and employers. All of these represent potential conflicts of interest with the exception of the cousin working for Aneas Lumber in a job that is unrelated to the Aneas’ financing.

kasinkei

Phil Trobb, CFA, is preparing a purchase recommendation on Aneas Lumber for his research firm. All of the following are potential conflicts of interest EXCEPT:

A) Trobb's research firm has a large stake of ownership in Aneas Lumber.

B) Aneas hires Trobb as a consultant to analyze Aneas' financial statements.

C) Trobb's cousin repairs machines for Aneas.

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Standard VI(A) defines what constitutes a conflict of interest with regard to clients, prospective clients, and employers. All of these represent potential conflicts of interest with the exception of the cousin working for Aneas Lumber in a job that is unrelated to the Aneas’ financing.

kasinkei

Dwight Dawson, a CFA charterholder and portfolio manager at Ascott Investments, was recently appointed to the investments committee at Brightwood College. He will receive no compensation from Brightwood for serving on this committee. Another person at Ascott manages part of Brightwood’s endowment. Dawson does not inform Ascott’s compliance office of his involvement with Brightwood, because he does not believe doing so is necessary.
Brenda Hamilton, a CFA candidate, also works for Ascott as an investment analyst. Procedures established at Ascott prohibit personal trading in securities analyzed or recommended by Ascott. One of these securities is Horizon, a telecommunications firm. Hamilton buys 10 shares of Horizon for her infant son’s trust account. She believes that reporting this purchase to Ascott’s compliance officer is unnecessary because the amount of the transaction is small and is not for her own personal account.
Did Dawson or Hamilton’s actions violate CFA Institute Standards of Professional Conduct?

A) Dawson: No, Hamilton: No.

B) Dawson: Yes, Hamilton: Yes.

C) Dawson: No, Hamilton: Yes.

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Dawson violated Standard VI(A), Disclosure of Conflicts, by failing to inform Ascott of her involvement with Brightwood College. Dawson could reasonably be expected to be involved with investment policy decisions at Brightwood that could affect Ascott because Ascott manages a portion of Brightwood’s endowment. Hamilton also violated Standard VI(A), because she ignored a directive of her employer. Her purchase of Horizon stock has an appearance of impropriety. Hamilton could discuss the purchase of Horizon stock with her firm’s compliance officer and request an exception to the prohibition against personal trading in securities analyzed or recommended by Ascott.

kasinkei

Will Lambert, CFA, is a financial analyst for Offshore Investments. He is preparing a purchase recommendation on Burch Corporation. According to CFA Institute Standards of Professional Conduct, which of the following statements about disclosure of conflicts is most correct? Lambert would have to disclose that:

A) he has a material beneficial ownership of Burch Corporation through a family trust.

B) his wife owns 2,000 shares of Burch Corporation.

C) both of these choices require disclosure.

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Standard VI(A) requires that Members and Candidates fully disclose all matters which may impair their independence or objectivity or interfere with their duties to their employer, clients and prospects.

kasinkei

The following scenarios involve two analysts at Dupree Asset Management, a small New York-based company with about $150 million in assets under management. Dupree restricts personal trading of stocks analyzed, corporate directorships, trustee positions, and other special relationships that could reasonably be considered a conflict of interest with their responsibilities to their employer.

• Ray Bolt, CFA, is a senior investment analyst. Bolt was recently elected to the board of trustees of his alma mater, Midwest University, and was appointed as the chairman of the University's endowment committee. Midwest has more than $2 billion in its endowment. Bolt must travel from New York to Chicago eight times a year to attend meetings of the board of trustees and endowment committee. Bolt did not inform Dupree of his involvement with Midwest University.
• Wanda Delvecco, a candidate in the CFA Program, is a junior investment analyst. She recently wrote a research report on Aveco Communications and recommended the stock for Dupree's "buy" list. Delvecco bought 200 shares of Aveco stock for her personal account 12 months before she wrote her research report. Over the past 12 months, the stock's price has been in the $20-42 price range. Delvecco has not informed Dupree of her ownership of Aveco stock.

According to CFA Institute Standards of Professional Conduct, which the following statements about Bolt and Delvecco's actions is CORRECT?

A) Delvecco violated the Standards, but Bolt did not.

B) Neither Bolt nor Delvecco violated the Standards.

C) Both Bolt and Delvecco violated the Standards.

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Standard VI(A), Disclosure of Conflicts, requires that Bolt inform Dupree of his involvement with Midwest University given that Bolt's new role can be expected to be time consuming and possibly affect his responsibilities at Dupree. Delvecco is required to disclose her ownership of Aveco stock before conducting the research report because such ownership could bias her objectivity in making a recommendation. She should have discussed owning the stock with her supervisor before beginning to write the research report on Aveco.