bmaggie

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.

bmaggie

Arthur Harrow, CFA, is a pharmaceuticals analyst at Dominion Asset Management. His supervisor directs him to prepare separate research reports on Miracle Drug Company and Wonder Drug Company. Harrow's former college roommate and close friend is the president of Miracle. Harrow owns 2000 shares of Wonder, which currently sells for $25 a share. Harrow's supervisor is unaware of these facts. According to CFA Institute Standards of Professional Conduct, which of the following action, if any, is Harrow required to take if he writes the research reports?

A) Harrow must disclose to Dominion his ownership of shares in Wonder but not his relationship with the president of Miracle.

B) Harrow must disclose to Dominion both his relationship with the president of Miracle and his ownership of shares in Wonder.

C) Harrow must disclose to Dominion his relationship with the president of Miracle but not his ownership of shares in Wonder.

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Standard VI(A) requires that Harrow disclose to Dominion conflicts that reasonably could be expected to interfere with his independence and objectivity. Both Harrow's relationship with the president of Miracle and his ownership of a substantial dollar amount of Wonder's shares represent a potential conflict requiring prompt disclosure to Dominion.

bmaggie

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 cousin repairs machines for Aneas.

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

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

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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.

bmaggie

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) both of these choices require disclosure.

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

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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.

bmaggie

According to Standard VI(A), Disclosures of Conflicts, members must disclose to their clients the member’s (or their firm’s) material ownership of all of the following EXCEPT:

A) corporate finance relationships.

B) real estate holdings.

C) beneficial ownership of securities.

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Unless the firm’s real estate holdings would impair their independence and objectivity, they need not be disclosed.

bmaggie

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

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

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

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.

bmaggie

Ryan Brown, CFA, is an analyst with a large insurance company. His personal portfolio includes a significant investment in QRS common stock that his firm does not currently follow. The director of the research department asked Brown to analyze QRS and write a report about its investment potential. Based on CFA Institute Standards of Professional Conduct, Brown should:

A) disclose the ownership of the stock to his employer and in the report.

B) sell his shares of QRS before completing the report.

C) decline to write the report without specific approval of his supervisor.

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Members are required to act on behalf of their clients, placing their clients’ interests ahead of their own. Brown should disclose his personal ownership of QRS to his employer and also in the report.

bmaggie

An analyst has been covering a particular firm for years. Recently, the analyst’s uncle died and left the analyst a sizable position in the firm’s stock. The analyst needs to:

A) refuse to receive the stock in the first place.

B) do nothing since the analyst did not purchase the stock.

C) disclose the ownership of the stock to his supervisor.

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The only thing the analyst needs to do is to disclose the ownership of the stock to his supervisor in accordance to Standard VI(A), Disclosure of Conflicts. Refusing to receive the stock could be acceptable option, but is not required.