Reading 60: Ethics Application

A member discovers that his firm is overcharging clients by treating reimbursable expenses incorrectly. He reports this to his supervisor, but the firm only remedies the situation for some clients, not all. To comply with Standard I(A) Knowledge of the Law, the member must:

A member manages an account for a long-standing client who has relationships with the firm's board members. The member notices transactions that appear to be at high risk of money laundering but fails to investigate them due to the client's status. This is a violation of:

To expedite the processing of documents, a member forges a client's signature on a routine form. The member believes this is in the client's best interest to save time. This action is:

A member contributes to a politician's campaign with the belief that it will lead to preferential treatment in awarding management contracts for a government pension fund. This action constitutes a violation of:

A member assures a client that the returns on a new fund will definitely outweigh the penalties incurred from shifting funds out of an existing investment. The new investment has no actual guarantee. This statement violates:

A firm submits a proposal to manage pension assets, listing specific key personnel. While the proposal is under consideration, a key person leaves the firm. The firm does not inform the potential client. This is:

A member who is the CEO of a company posts on social media that funding is secured to take the company private at $420 per share. He later admits the price was a joke. This action constitutes a violation of:

A member is arrested for minor criminal offenses related to civil disobedience while protesting. According to Standard I(D) Misconduct, this arrest:

A member uses his firm's error-correction policy to effectively credit his own money to a client account to cover up poor performance. This is a violation of:

A member overhears a friend's phone conversation and infers that a takeover offer for a specific company is imminent. The member trades on this information. This is:

A member attends a meeting of analysts with company management and learns about a regulator's positive response to a new drug trial. He immediately shares this with his clients. This is a violation of Standard II(A) because:

To meet the minimum shareholder requirement for an exchange listing, a member fraudulently includes names of people who do not actually own shares. This violates:

A firm includes a policy in client agreements stating that representatives are excused from investigating the suitability of recommendations and that clients cannot claim for securities law violations. This policy:

A member executes trades for a client who self-directs his own account. The client receives the firm's margin policies. If a margin shortfall occurs, the terms are open to negotiation. The member's action:

A member stays over a weekend to reduce transportation costs for a client business trip, increasing lodging costs but lowering total expenses. He allocates these expenses to the client. This is:

A member offers a premium service for an additional fee where clients receive weekly updates that may indicate future recommendation changes. All clients are informed of this service. The firm simultaneously emails all clients regarding actual recommendation changes. This practice:

A member recommends investments that carry more risk than is suitable for certain clients, reasoning that the investments offer significant tax advantages. This is:

A client requests a change to their portfolio. The member makes the change without investigating whether the requested investment is suitable for the client's circumstances. This is:

A member presents performance data for a new fund based on a composite of separately managed accounts the firm managed previously. The presentation gives the impression the fund itself has a long history. This is:

A member downloads clients' personally identifiable information to his personal server to work from home. The server is hacked. This is a violation of:

Following a hack of a member's personal server containing client data, the firm's head of compliance is also found to have violated Standard III(E). Why?

While still employed by Firm A, a member makes harmful statements about Firm A and promotes the firm she intends to move to. This is:

A member is pressured to sell expensive, underperforming proprietary products. He complains to management to no avail, then documents the conduct and reports it to regulators. This action:

A member copies a client list containing personal information to send thank-you notes after leaving her firm. She does not intend to solicit them. This is:

A member works for a firm that produces issuer-paid research. A company offers her a bonus if her firm selects them for coverage. To accept this, she must:

A supervisor at a branch office has no clear written compliance policies or employee training in place. He violates Standard IV(C) Responsibilities of Supervisors by:

A member accepts the role of Chief Compliance Officer despite having no experience, no authority to enforce policies, and no access to client communications. This violates Standard IV(C) because:

A member recommends a stock without performing diligent, independent analysis. A second member incorporates part of the first member's report into her own recommendation without verifying it. Who violated Standard V(A)?

A firm changes its fee calculation method from what was originally disclosed. The overall fees are not higher. Under Standard V(B) Communication with Clients, the member must:

A credit rating agency changes its methodology for rating mortgage-backed securities. A member publishes ratings based on the new method without disclosing the change. This is:

A member keeps himself updated on client circumstances but fails to update the written client profiles (records). This is:

A member receives payments from third-party subadvisors she uses for client funds. To avoid violating Standard VI(A) Disclosure of Conflicts, she must:

A member buys shares and call options in his personal account just prior to executing large buy orders for the same stock in client accounts. This is known as:

A member tells friends and relatives about large buy orders he is about to execute for his employer's clients, allowing them to trade ahead. This violates:

A member enters block trades and allocates them to specific accounts after the market closes, giving profitable trades to his personal account and losing trades to clients. This violates:

A member invites clients who have referred profitable accounts to lavish parties and gives them fee discounts. These rewards are not disclosed to other clients or prospects. This violates:

A member teaching exam-prep classes hosts a party and solicits opinions from candidates about the most difficult exam questions. This behavior is:

A previous member who has not paid her CFA Institute dues continues to use the CFA designation on her business cards. This is:

A member claims in marketing materials that 'all senior employees' are CFA charterholders. In reality, one senior employee has not paid dues and is not an active member. This statement:

Karen Jones, CFA, is an outside director. She discovers the board has made illegal foreign political contributions. The board votes not to disclose them. To comply with Standard I(A), Jones should:

Beth Bixby, CFA, uses a quantitative model. She claims in promotional materials: 'We select a portfolio that has similar risk to the S&P 500 Index but will receive a return between 2% and 4% greater than the index.' This statement:

Lorraine Quigley, CFA, purchases large quantities of a stock while shorting put options on the same stock as part of an arbitrage strategy. She does not notify clients of these specific trades, though they know the general strategy. This is:

Julia Green, CFA, receives news in an internet chat room from friends about a new product in Singapore that could double a firm's revenue. The firm has not released this info. This information is:

Melvin Byrne, CFA, invests a new client's portfolio similarly to the client's brother's portfolio, reasoning they have similar lifestyles and are close in age. Byrne did not interview the new client. This violates:

A client tells his portfolio manager he is under IRS investigation for tax evasion. The manager informs an investment bank friend to withdraw a proposal for the client's company. This is:

Robert Blair, CFA, is aware that his firm's compliance procedures are not being followed. Management ignores his requests to correct this. Blair should:

Eugene Nieder, CFA, recreates a complex model he developed at his previous employer from memory for his new employer. He creates supporting documentation for the new model. This is:

Fred Johnson, CFA, recommends a stock based solely on his brother's enthusiastic recommendation of the company's product, without further research. This violates:

Pick Asset Management receives brokerage business from Neiman Investment Co. in exchange for referrals. Pick discloses this arrangement to clients in writing when the relationship is established. This practice:

Cynthia White posts on an internet forum complaining that the Level I exam did not cover Alternative Investments. This post: