Ethics 1.4 Test

To comply with the GIPS standards, firms most likely must:

• A. apply standards on a firm-wide basis.
• B. be verified before they can claim compliance.
• C. be defined as separate legal entities.

Preeta Singh, a CFA candidate, is an asset manager employed by a fund management company managing very large segregated pension funds. In her spare time outside of working hours, Singh likes to provide management consulting services to small companies to help grow their businesses, focusing on strategic planning. Singh is paid for the consulting services and has also provided her employer information about these outside activities. Does Singh most likely violate the CFA Code of Ethics with regard to Duties to Employers?

• A. No.
• B. Yes, with regard to Loyalty.
• C. Yes, with regard to Additional Compensation Arrangements.

Molly Burnett, CFA, is a portfolio manager for a fund that only invests in environmentally friendly companies. A multinational utility company recently acquired one of the fund’s best performing investments, a wind power company. The wind power company’s shareholders received utility company shares as part of the merger agreement. The utility has one of the worst environmental records in the industry, but its shares have been one of the top performers over the past 12 months. Because the utility pays a high dividend every three months, Burnett holds the utility shares until the remaining two dividends are paid for the year then sells the shares. Burnett most likely violated the CFA Institute Standard of Professional Conduct concerning:

• A. suitability.
• B. disclosure of conflicts.
• C. independence and objectivity.

Christy Pasley, CFA, is the Chief Investment Officer for Risen Investment Funds (RIF) a mutual fund organization. At a meeting between Homeland Builders (HB), a publicly traded company, Pasley learns HB sales are much slower than expected. In fact, HB sales declined more than 20% in the last quarter, but this information has not yet been widely disseminated. Immediately after meeting with HB, Pasley purchases put options on HB stock. Subsequently, HB issues a press release with their most recent sales figures. Has Pasley most likely violated the CFA Institute Standards of Professional Conduct?

• A. Yes.
• B. No, because the securities purchased were options.
• C. No, because the information was obtained directly from the company.

To claim compliance with the GIPS standards, a firm is required to:

• A. adhere to certain calculation methodologies.
• B. conduct an independent third-party verification of its claim of compliance.
• C. perform periodic internal compliance checks of its investment performance process.

The Investment Analysis, Recommendations, and Actions standard states that members and candidates must:

• A. find an investment suitable for their client before making a recommendation.
• B. make reasonable efforts to ensure that performance presentation is fair, accurate, and complete.
• C. distinguish between fact and opinion in the presentation of investment analysis and recommendations.

The Duties to Employers standard states that members and candidates must not:

• A. accept any gifts that might compromise their independence and objectivity.
• B. deprive their employer of their skills and abilities as related to their employment.
• C. accept compensation competing with their employer’s interest and with the written consent of all parties involved.

The mosaic theory holds that an analyst:

• A. Violates the Code and Standards if the analyst fails to have knowledge of and comply with applicable laws.
• B. Can use material public information and nonmaterial nonpublic information in the analyst’s analysis.
• C. Should use all available and relevant information in support of an investment recommendation.

Long has been asked to be the keynote speaker at an upcoming investment conference. The event is being hosted by one of the third-party investment managers currently used by his pension fund. The manager offers to cover all conference and travel costs for Long and make the conference registrations free for three additional members of his investment management team. To ensure that the conference obtains the best speakers, the host firm has arranged for an exclusive golf outing for the day following the conference on a local championship-caliber course. Which of the following is least likely to violate Standard I(B)?

• A. Long may accept only the offer to have his conference-related expenses paid by the host firm.
• B. Long may accept the offer to have his conference-related expenses paid and may attend the exclusive golf outing at the expense of the hosting firm.
• C. Long may accept the entire package of incentives offered to speak at this conference.

Ethical conduct is most likely behavior that:

• A. simply considers both the direct benefit and indirect consequences on others.
• B. is perceived to be beneficial as per society’s ethical expectations.
• C. conforms to expectations as laid out by laws and regulations.