Ethics Q - Who's hot tonight? investment, management, recently, completed

ba736

Kevin Bryan is a financial analyst for Summit Investments. Bryan recently completed a research report recommending the stock of Independence Medical Company. Bryan failed to disclose that he has a material ownership interest in Independence Medical through a family trust.

Kim Scott, a CFA Charterholder with Overland Associates, is invited to attend an investment management conference in the Cayman Islands. The sponsor, one of Scott’s clients, has offered to reimburse Scott for all of her expenses. Scott accepts the sponsor’s offer and discloses the arrangement to her employer in writing.

Based on the CFA Institute Research Objectivity Standards, which of the following statements is CORRECT?


A) Summit is in violation of the Research Objectivity Standards but Overland is not in violation.

B) Both Summit and Overland are in violation of the Research Objectivity Standards.

C) Neither Summit nor Overland is in violation of the Research Objectivity Standards.

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Your answer: B was incorrect. The correct answer was A) Summit is in violation of the Research Objectivity Standards but Overland is not in violation.

Summit is in violation because policies and procedures were not in place to prevent Bryan from recommending a stock without disclosing a potential conflict of interest. Overland is not in violation. Scott can accept reimbursement since the sponsor is a client and the reimbursement was disclosed to Overland.

*** This one caught me off guard. Still think 'B' is the proper choice. Any opinions?

madaochenggong

ruins Wrote:
-------------------------------------------------------
> It seems as though the person who wrote that
> question was confused about the material. The
> question appears to be a hybrid between a scenario
> concerning "Independence & Objectivity" and
> another scenario related to "Duties to Employers".
>
>
> If we suggest that a violation has or has not
> occurred based on the rugged details presented, we
> will be in violation of the standard pertaining to
> "Reasonable & Adequate Basis". Hhha!

I like your line of thought!

spreads

muffin09 Wrote:
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> So to finalize:
>
> 1) Client gives you a gift, not expected to create
> conflict of interest
>
> Result: Only need to disclose in writing to
> employer
>
> 2) Client gives you a gift, possibility for
> conflict of interest
>
> Result: Disclose plus WRITTEN permission
>
> 3) Research subject gives you a gift
>
> Result: Disclose plus WRITTEN permission


I dont think you can accept a gift that would have the possiblity in creating a conflict of interest even if you get approval. If you do, both you and supervisor are in violation of CFA rules.

Can you accept a gift from a research subject.. ever?



Edited 1 time(s). Last edit at Thursday, May 6, 2010 at 10:12PM by joseph213.

b_sea93

It seems as though the person who wrote that question was confused about the material. The question appears to be a hybrid between a scenario concerning "Independence & Objectivity" and another scenario related to "Duties to Employers".

If we suggest that a violation has or has not occurred based on the rugged details presented, we will be in violation of the standard pertaining to "Reasonable & Adequate Basis". Hhha!

wilslm

primitive!

neil1234

Agreed... I would have answered C.

redskins44

So to finalize:

1) Client gives you a gift, not expected to create conflict of interest

Result: Only need to disclose in writing to employer

2) Client gives you a gift, possibility for conflict of interest

Result: Disclose plus WRITTEN permission

3) Research subject gives you a gift

Result: Disclose plus WRITTEN permission

WarrenB1

What a weird question. How would a *firm* be in violation? (honest question)

I also don't see the confusion for the Overland -- there is no mention whatsoever what the firm or Kim Scott does.

KungFuPanda

It's a Schweser QBank question.

Gifts from clients can be accepted as long as they are reported to your supervisor and do not interfere with your objectivity and ability to manage accounts equally.

MiniMe7

I thought it was B as well, but my reasoning was different. Summit was definitely in violation.

I thought Overland was also in violation. I thought one had to get APPROVAL in writing prior to accepting gifts from clients. I didn't think simple disclosure was enough.

Is this from CFAI or a study provider?