Ethical And Professional Standards MCQ - Ethical And Professional Standards Section 1

71 Catherine Czcibor, CFA, works as a portfolio manager for a local investment counseling firm. She is also a member of her son‟s school committee to help raise funding for a program for gifted children in music. Czcibor discusses an arrangement with her supervisor in which she will donate a certain percentage of her fees from clients referred to her by the school staff and parents. She gets a written approval from her firm. The school‟s board also approves Czcibor‟s plan and agrees to announce it in their upcoming parent teacher meeting along with sending a newsletter to all the parents and staff. When Czcibor starts getting the school referrals, she clearly discusses the referral arrangement with her new clients and the distribution of her donation to the school. Has Czcibor violated any CFA Institute Standards of Professional Conduct?

Czcibor has not violated VI(C) Referral Fees because she obtained permission from her employers, the school, and the clients.

72 Isaac Dobrogost, a candidate in the CFA Program, works as an investment advisor for Zenith Mutual Fund. He is invited by one of his clients, Sahara Inc. (SI), a manufacturing company, to meet with the finance director along with a few large stakeholders of SI. In the meeting Dobrogost finds out that the company is going through a lean period and will announce a decrease in earnings in their next quarter financial results. Can Dobrogost use this information to change the rating of the company from “buy” to “sell”?

If the information is not publicly disseminated by the company and Dobrogost uses it, then it becomes material nonpublic information, hence a violation of Standard II(A). A small group of stakeholders does not qualify as the public. He cannot use the information.

73 Izzy Zubeika, CFA, works for Topworth Mutual Fund and is a portfolio manager for an aggressive growth equity fund. She is planning to sell a large portion of her investment to meet the medical costs of her ailing husband. Zubeika wants to sell her stake in Royal Beverages, but her firm has recently upgraded the stock from “hold” to “buy”. Nevertheless after receiving approval from her employer she informs her broker to conduct the trade. Has Zubeika violated any CFA Institute Standards of Professional Conduct?

No violation has occurred because she has received approval from her employer. Standard VI(B) Priority of Transactions does not limit transactions of employees which are different from the current recommendations as long as they do not disadvantage the current clients.

74 Su Ming Li, CFA, works as a portfolio manager for Peoples Investment Bank. She is asked to analyze certain East Asian equities by her firm, for the purpose of purchasing them. Li talks to Peter Wang, a friend and one of the owners of Dragon Brokerage and Investment Company. He informs her that the East Asian equities are doing very well due to a boom in their respective economies. After thoroughly investigating these equities, she purchases them for her accounts wherever they are suitable. Soon after she gets a call from Dragon to join the firm as a managing partner. Li accepts the offer and resigns from her current job. The week before joining Dragon, she purchases 1500 shares of East Asian equities for her personal account. Once Li begins working at Dragon, she purchases a large block of shares of East Asian equities and allocates them to accounts. Does Li‟s purchase of shares for her personal account violate the CFA Institute Standard of Professional Conduct?

Li may have violated the Standard relating to Priority of Transactions when purchasing the shares for her account. She has accepted Dragon’s offer to join as managing partner, has discussed the shares with Wang, and knows, or should know, that she will purchase them for at least some Dragon clients once she begins work at Dragon. Her purchase ahead of Dragon clients might be front-running. Best practice would be to delay her private account purchase until after she purchases for clients.

75 Kaori Kazuya and Albert Farnsworth are both candidates in the CFA Program. Kazuya is registered for the Level II exam and Farnsworth has passed the Level III exam of the CFA program. Farnsworth is awaiting his CFA charter. Kazuya works for Metro Investments and her business cards reads, “Kaori Kazuya, CFA Level II candidate” whereas Farnsworth works as an analyst at Sarosky Wealth Management and does not put any CFA designation on his business cards. But at the end of his reports, he does give a reference that, “Albert Farnsworth has passed all three levels of the CFA Program and will be eligible for the CFA charter upon completion of the required work experience.” Who most likely violated the Standards?

Kazuya violates Standard VII(B) Reference to CFA Institute, the CFA Designation, and the CFA Program, by using an improper designation on her business cards. Farnsworth reference is proper according to Standard VII(B) Reference to CFA Institute, the CFA Designation, and the CFA Program.