I-A：Knowledge of the Law

（1）Notification of Known Violations

• Michael Allen works for a brokerage firm and is responsible for an underwriting of securities. A company official gives Allen information indicating that the financial statements Allen filed with the regulator overstate the issuer’s earnings. Allen seeks the advice of the brokerage firm’s general counsel（总法律顾问; 法律总顾问; 总顾问; 法律总监; 公司法律顾问）, who states that it would be difficult for the regulator to prove that Allen has been involved in any wrongdoing.

• Comment:

  • Although it is recommended that members and candidates seek the advice of legal counsel, the reliance on such advice does not absolve a member or candidate from the requirement to comply with the law or regulation.
    • Allen cannot be absolved from requirements to comply with law/regulation in spite of（尽管）having sought advice of legal counsel.
    • absolve：赦免; 赦免…的罪; 宣告…无罪; 判定…无责
  • Allen should report this situation to his supervisor, seek an independent legal opinion, and determine whether the regulator should be notified of the error.
  • As the counsel does not give clear justification（正当理由）for the legitimacy（合法性; 正统性; 正统; 嫡系）of the situation, Allen must report to his supervisor and seek independent legal advice and determine whether the regulator should be notified of the error.

    （2）Dissociating from a Violation（2 题）

• Lawrence Brown’s employer, an investment banking firm, is the principal underwriter for an issue of convertible debentures by the Courtney Company. Brown discovers that the Courtney Company has concealed severe third-quarter losses in its foreign operations. The preliminary prospectus has already been distributed.

• Comment:
  • Knowing that the preliminary prospectus is misleading, Brown should report his findings to the appropriate supervisory persons in his firm. If the matter is not remedied and Brown’s employer does not dissociate from the underwriting, Brown should sever all his connections with the underwriting. Brown should also seek legal advice to determine whether additional reporting or other action should be taken.
  • sever：切断，割断; 把……分隔开，（使）分离，（使）分裂; 断绝，中断; 区别，辨别; 把……割下; 〈律〉（在法庭上）独立行事; 〈律〉公割; 中止（某人）的雇用合同
  • debenture：(公司) 债券

• Kamisha Washington’s firm advertises its past performance record by showing the 10-year return of a composite of its client accounts. Washington discovers, however, that the composite omits the performance of accounts that have left the firm during the 10-year period, whereas the description of the composite indicates the inclusion of all firm accounts. This omission has led to an inflated performance figure.
• Washington is asked to use promotional material that includes the erroneous performance number when soliciting business for the firm.

• Comment:

  • Misrepresenting performance is a violation of the Code and Standards.
  • Although she did not calculate the performance herself, Washington would be assisting in violating Standard I(A) if she were to use the inflated performance number when soliciting clients.
  • She must dissociate herself from the activity. If discussing the misleading number with the person responsible is not an option for correcting the problem, she can bring the situation to the attention of her supervisor or the compliance department at her firm.
  • If her firm is unwilling to recalculate performance, she must refrain from using the misleading promotional material and should notify the firm of her reasons. If the firm insists that she use the material, she should consider whether her obligation to dissociate from the activity requires her to seek other employment.

    （3）Following the Highest Requirements（3 题）

• James Collins is an investment analyst for a major Wall Street brokerage firm. He works in a developing country with a rapidly modernizing economy and a growing capital market. Local securities laws are minimal — in form and content — and include no punitive prohibitions against insider trading.

• Comment:
  • Collins must abide by the requirements of the Code and Standards, which might be more strict than the rules of the developing country. He should be aware of the risks that a small market and the absence of a fairly regulated flow of information to the market represent to his ability to obtain information and make timely judgments.
  • He should include this factor in formulating his advice to clients. In handling material nonpublic information that accidentally comes into his possession, he must follow Standard II(A) – Material Nonpublic Information.
  • punitive：[ˈpjuːnətɪv] 惩罚性的; 处罚的; 刑罚的; (租税等)苛刻的

• Jameson is a CFA charterholder based in the US and also works as a registered investment advisor in an island nation that prohibits participation in IPOs, he believes the Code and Standards apply and ignores the strict prohibition on IPOs in the island.
• Comment
  • Jameson must follow the stricter requirements of the local law.
  • By ignoring it, he is in violation of Standard I(A).

• Laura Jameson works for a multinational investment adviser based in the United States. Jameson lives and works as a registered investment adviser in the tiny, but wealthy, island nation of Karramba. Karramba’s securities laws state that no investment adviser registered and working in that country can participate in initial public offerings (IPOs) for the adviser’s personal account. Jameson, believing that, as a US citizen working for a US-based company, she should comply only with US law, has ignored this Karrambian law.
• In addition, Jameson believes that as a charterholder, as long as she adheres to the Code and Standards requirement that she disclose her participation in any IPO to her employer and clients when such ownership creates a conflict of interest, she is meeting the highest ethical requirements.

• Comment:

  • Jameson is in violation of Standard I(A).
  • As a registered investment adviser in Karramba, Jameson is prevented by Karrambian securities law from participating in IPOs regardless of the law of her home country.
  • In addition, because the law of the country where she is working is stricter than the Code and Standards, she must follow the stricter requirements of the local law rather than the requirements of the Code and Standards.

    （4）Laws and Regulations Based on Religious Tenets

• Amanda Janney is employed as a fixed-income portfolio manager for a large international firm. She is on a team within her firm that is responsible for creating and managing a fixed-income hedge fund to be sold throughout the firm’s distribution centers to high-net-worth clients. Her firm receives expressions of interest from potential clients from the Middle East who are seeking investments that comply with Islamic law. The marketing and promotional materials for the fixed-income hedge fund do not specify whether or not the fund is a suitable investment for an investor seeking compliance with Islamic law. Because the fund is being distributed globally, Janney is concerned about the reputation of the fund and the firm and believes disclosure of whether or not the fund complies with Islamic law could help minimize potential mistakes with placing this investment.

• Comment:

  • As the financial market continues to become globalized, members and candidates will need to be aware of the differences between cultural and religious laws and requirements as well as the different governmental laws and regulations.
  • Janney and the firm could be proactive in their efforts to acknowledge areas where the new fund may not be suitable for clients.
  • proactive：积极主动的; 先发制人的; 主动出击的

    （5）Reporting Potential Unethical Actions

• Krista Blume is a junior portfolio manager for high-net-worth portfolios at a large global investment manager. She observes a number of new portfolios and relationships coming from a country in Europe where the firm did not have previous business and is told that a broker in that country is responsible for this new business.

• At a meeting on allocation of research resources to third-party research firms, Blume notes that this broker has been added to the list and is allocated payments for research. However, she knows the portfolios do not invest in securities in the broker’s country, and she has not seen any research come from this broker. Blume asks her supervisor about the name being on the list and is told that someone in marketing is receiving the research and that the name being on the list is OK. She believes that what may be going on is that the broker is being paid for new business through the inappropriate research payments, and she wishes to dissociate from the misconduct.

• Comment:

  • Blume should follow the firm’s policies and procedures for reporting potential unethical activity, which may include discussions with her supervisor or someone in a designated compliance department.
  • She should communicate her concerns appropriately while advocating for disclosure between the new broker relationship and the research payments.

    （6）Failure to Maintain Knowledge of the Law

• Colleen White is excited to use new technology to communicate with clients and potential clients. She recently began posting investment information, including performance reports and investment opinions and recommendations, to her Facebook page. In addition, she sends out brief announcements, opinions, and thoughts via her Twitter account (for example, “Prospects for future growth of XYZ company look good! #makingmoney4U”). Prior to White’s use of these social media platforms, the local regulator had issued new requirements and guidance governing online electronic communication. White’s communications appear to conflict with the recent regulatory announcements.

• Comment:

  • White is in violation of Standard I(A) because her communications do not comply with the existing guidance and regulation governing use of social media.
  • White must be aware of the evolving legal requirements pertaining to new and dynamic areas of the financial services industry that are applicable to her.
  • She should seek guidance from appropriate, knowledgeable, and reliable sources, such as her firm’s compliance department, external service providers, or outside counsel, unless she diligently follows legal and regulatory trends affecting her professional responsibilities.

    I-B：Independence and Objectivity

    （1）Travel Expenses

• Steven Taylor, a mining analyst with Bronson Brokers, is invited by Precision Metals to join a group of his peers in a tour of mining facilities in several western US states. The company arranges for chartered group flights（团体包机） from site to site and for accommodations in Spartan Motels, the only chain with accommodations near the mines, for three nights. Taylor allows Precision Metals to pick up his tab, as do the other analysts, with one exception — John Adams, an employee of a large trust company who insists on following his company’s policy and paying for his hotel room himself.

• Comment:

  • The policy of the company where Adams works complies closely with Standard I(B) by avoiding even the appearance of a conflict of interest, but Taylor and the other analysts were not necessarily violating Standard I(B).
  • In general, when allowing companies to pay for travel and/or accommodations in these circumstances, members and candidates must use their judgment. They must be on guard（保持警惕）that such arrangements not impinge on a member’s or candidate’s independence and objectivity.
  • In this example, the trip was strictly for business and Taylor was not accepting irrelevant or lavish hospitality. The itinerary（itinerary [aɪˈtɪnəreri] 行程; 旅行日程） required chartered flights, for which analysts were not expected to pay. The accommodations were modest.
  • These arrangements are not unusual and did not violate Standard I(B) as long as Taylor’s independence and objectivity were not compromised.
  • In the final analysis, members and candidates should consider both whether they can remain objective and whether their integrity might be perceived by their clients to have been compromised.

    （2）Research Independence（5 题）

• Susan Dillon, an analyst in the corporate finance department of an investment services firm, is making a presentation to a potential new business client that includes the promise that her firm will provide full research coverage of the potential client.

• Comment:
  • Dillon may agree to provide research coverage, but she must not commit her firm’s research department to providing a favorable recommendation.
  • The firm’s recommendation (favorable, neutral, or unfavorable) must be based on an independent and objective investigation and analysis of the company and its securities.

• Walter Fritz is an equity analyst with Hilton Brokerage who covers the mining industry. He has concluded that the stock of Metals & Mining is overpriced at its current level, but he is concerned that a negative research report will hurt the good relationship between Metals & Mining and the investment banking division of his firm. In fact, a senior manager of Hilton Brokerage has just sent him a copy of a proposal his firm has made to Metals & Mining to underwrite a debt offering. Fritz needs to produce a report right away and is concerned about issuing a less-than-favorable rating.
• Comment:
  • Fritz’s analysis of Metals & Mining must be objective and based solely on consideration of company fundamentals. Any pressure from other divisions of his firm is inappropriate.
  • This conflict could have been eliminated if, in anticipation of the offering, Hilton Brokerage had placed Metals & Mining on a restricted list for its sales force.（Place on the restricted list for corporate client if unwilling to hurt the relationship.）

• Walter Fritz has concluded that Metals & Mining stock is overvalued at its current level, but he is concerned that a negative research report might jeopardize a close rapport that he has nurtured over the years with Metals & Mining’s CEO, chief finance officer, and investment relations officer. Fritz is concerned that a negative report might result also in management retaliation — for instance, cutting him off from participating in conference calls when a quarterly earnings release is made, denying him the ability to ask questions on such calls, and/or denying him access to top management for arranging group meetings between Hilton Brokerage clients and top Metals & Mining managers.
• Comment:
  • Fritz’s analysis must be objective and based solely on consideration of company fundamentals. Any pressure from Metals & Mining is inappropriate.
  • Fritz should reinforce the integrity of his conclusions by stressing that his investment recommendation is based on relative valuation, which may include qualitative issues with respect to Metals & Mining’s management.

• As support for the sales effort of her corporate bond department, Lindsey Warner offers credit guidance to purchasers of fixed-income securities. Her compensation is closely linked to the performance of the corporate bond department. Near the quarter’s end, Warner’s firm has a large inventory position in the bonds of Milton, Ltd., and has been unable to sell the bonds because of Milton’s recent announcement of an operating problem. Salespeople have asked her to contact large clients to push the bonds.
• Comment:
  • Unethical sales practices create significant potential violations of the Code and Standards.
  • Warner’s opinion of the Milton bonds must not be affected by internal pressure or compensation.
  • In this case, Warner must refuse to push the Milton bonds unless she is able to justify that the market price has already adjusted for the operating problem.

• Jill Jorund is a securities analyst following airline stocks and a rising star at her firm. Her boss has been carrying a “buy” recommendation on International Airlines and asks Jorund to take over coverage of that airline. He tells Jorund that under no circumstances should the prevailing buy recommendation be changed.

• Comment:

  • Jorund must be independent and objective in her analysis of International Airlines.
  • If she believes that her boss’s instructions have compromised her, she has two options: She can tell her boss that she cannot cover the company under these constraints, or she can take over coverage of the company, reach her own independent conclusions, and if they conflict with her boss’s opinion, share the conclusions with her boss or other supervisors in the firm so that they can make appropriate recommendations.
  • Jorund must issue only recommendations that reflect her independent and objective opinion.

    （3）Gifts and Entertainment from Related Party or Client（2 题）

• Edward Grant directs a large amount of his commission business to a New York–based brokerage house（经纪人商店，手续费商行，经纪人事务所）. In appreciation for all the business, the brokerage house gives Grant two tickets to the World Cup in South Africa, two nights at a nearby resort, several meals, and transportation via limousine to the game. Grant fails to disclose receiving this package to his supervisor.

• Comment:
  • Grant has violated Standard I(B) because accepting these substantial gifts may impede his independence and objectivity.
  • Every member and candidate should endeavor to avoid situations that might cause or be perceived to cause a loss of independence or objectivity in recommending investments or taking investment action.
  • By accepting the trip, Grant has opened himself up to the accusation that he may give the broker favored treatment in return.
  • limousine：[ˈlɪməziːn] 豪华轿车; 大型高级轿车; (往返机场接送旅客的)中型客车，小型公共汽车

• Theresa Green manages the portfolio of Ian Knowlden, a client of Tisbury Investments. Green achieves an annual return for Knowlden that is consistently better than that of the benchmark she and the client previously agreed to. As a reward, Knowlden offers Green two tickets to Wimbledon and the use of Knowlden’s flat in London for a week. Green discloses this gift to her supervisor at Tisbury.

• Comment:

  • Green is in compliance with Standard I(B) because she disclosed the gift from one of her clients in accordance with the firm’s policies.
  • Members and candidates may accept bonuses or gifts from clients as long as they disclose them to their employer because gifts in a client relationship are deemed less likely to affect a member’s or candidate’s objectivity and independence than gifts in other situations.
  • Disclosure is required, however, so that supervisors can monitor such situations to guard against employees favoring a gift-giving client to the detriment of other fee-paying clients (such as by allocating a greater proportion of IPO stock to the giftgiving client’s portfolio).
  • Best practices for monitoring include comparing the transaction costs of the Knowlden account with the costs of other accounts managed by Green and other similar accounts within Tisbury. The supervisor could also compare the performance returns with the returns of other clients with the same mandate. This comparison will assist in determining whether a pattern of favoritism by Green is disadvantaging other Tisbury clients or the possibility that this favoritism could affect her future behavior.

    （4）【IMP】Travel Expenses from External Manager

• Tom Wayne is the investment manager of the Franklin City Employees Pension Plan. He recently completed a successful search for a firm to manage the foreign equity allocation of the plan’s diversified portfolio. He followed the plan’s standard procedure of seeking presentations from a number of qualified firms and recommended that his board select Penguin Advisors because of its experience, well-defined investment strategy, and performance record. The firm claims compliance with the Global Investment Performance Standards (GIPS) and has been verified.

• Following the selection of Penguin, a reporter from the Franklin City Record calls to ask if there was any connection between this action and the fact that Penguin was one of the sponsors of an “investment fact-finding trip to Asia” that Wayne made earlier in the year. The trip was one of several conducted by the Pension Investment Academy, which had arranged the itinerary of meetings with economic, government, and corporate officials in major cities in several Asian countries. The Pension Investment Academy obtains support for the cost of these trips from a number of investment managers, including Penguin Advisors; the Academy then pays the travel expenses of the various pension plan managers on the trip and provides all meals and accommodations. The president of Penguin Advisors was also one of the travelers on the trip.

• Comment:

  • itinerary：[aɪˈtɪnəreri] n. 行程; 旅行日程; adj. 巡回的; 旅行的; 巡回中的
  • Although Wayne can probably put to good use the knowledge he gained from the trip in selecting portfolio managers and in other areas of managing the pension plan, his recommendation of Penguin Advisors may be tainted by the possible conflict incurred when he participated in a trip partly paid for by Penguin Advisors and when he was in the daily company of the president of Penguin Advisors.
    • taint：n. 污染; 污点; 玷污; 腐坏 vt. 污染; 玷污，败坏(名声); 使腐坏
  • To avoid violating Standard I(B), Wayne’s basic expenses for travel and accommodations should have been paid by his employer or the pension plan; contact with the president of Penguin Advisors should have been limited to informational or educational events only; and the trip, the organizer, and the sponsor should have been made a matter of public record.
  • Even if his actions were not in violation of Standard I(B), Wayne should have been sensitive to the public perception of the trip when reported in the newspaper and the extent to which the subjective elements of his decision might have been affected by the familiarity that the daily contact of such a trip would encourage. This advantage would probably not be shared by firms competing with Penguin Advisors.

    （5）Research Independence and Compensation Arrangements

• Javier Herrero recently left his job as a research analyst for a large investment adviser. While looking for a new position, he was hired by an investor-relations firm to write a research report on one of its clients, a small educational software company. The investor-relations firm hopes to generate investor interest in the technology company.

• The firm will pay Herrero a flat fee plus a bonus if any new investors buy stock in the company as a result of Herrero’s report.

• Comment:

  • If Herrero accepts this payment arrangement, he will be in violation of Standard I(B) because the compensation arrangement can reasonably be expected to compromise his independence and objectivity.
  • Herrero will receive a bonus for attracting investors, which provides an incentive to draft a positive report regardless of the facts and to ignore or play down any negative information about the company.
  • Herrero should accept only a flat fee that is not tied to the conclusions or recommendations of the report.
  • Issuer-paid research that is objective and unbiased can be done under the right circumstances as long as the analyst takes steps to maintain his or her objectivity and includes in the report proper disclosures regarding potential conflicts of interest.

    （6）【IMP】Recommendation Objectivity and Service Fees

• Two years ago, Bob Wade, trust manager for Central Midas Bank, was approached by Western Funds about promoting its family of funds, with special interest in the service-fee class of funds. To entice Central to promote this class, Western Funds offered to pay the bank a service fee of 0.25%. Without disclosing the fee being offered to the bank, Wade asked one of the investment managers to review Western’s funds to determine whether they were suitable for clients of Central Midas Bank. The manager completed the normal due diligence review and determined that the new funds were fairly valued in the market with fee structures on a par with competitors. Wade decided to accept Western’s offer and instructed the team of portfolio managers to exclusively promote these funds and the service-fee class to clients seeking to invest new funds or transfer from their current investments.

• Now, two years later, the funds managed by Western begin to underperform their peers. Wade is counting on the fees to reach his profitability targets and continues to push these funds as acceptable investments for Central’s clients.

• Comment:

  • Wade is violating Standard I(B) because the fee arrangement has affected the objectivity of his recommendations.
  • Wade is relying on the fee as a component of the department’s profitability and is unwilling to offer other products that may affect the fees received.
  • See also Standard VI(A)–Disclosure of Conflicts.

    （7）Recommendation Objectivity

• Bob Thompson has been doing research for the portfolio manager of the fixed-income department. His assignment is to do sensitivity analysis on securitized subprime mortgages. He has discussed with the manager possible scenarios to use to calculate expected returns. A key assumption in such calculations is housing price appreciation (HPA) because it drives “prepays” (prepayments of mortgages) and losses. Thompson is concerned with the significant appreciation experienced over the previous five years as a result of the increased availability of funds from subprime mortgages. Thompson insists that the analysis should include a scenario run with –10% for Year 1, –5% for Year 2, and then (to project a worst-case scenario) 0% for Years 3 through 5. The manager replies that these assumptions are too dire because there has never been a time in their available database when HPA was negative.

• Thompson conducts his research to better understand the risks inherent in these securities and evaluates these securities in the worst-case scenario, an unlikely but possible environment. Based on the results of the enhanced scenarios, Thompson does not recommend the purchase of the securitization. Against the general market trends, the manager follows Thompson’s recommendation and does not invest. The following year, the housing market collapses. In avoiding the subprime investments, the manager’s portfolio outperforms its peer group that year.

• Comment:

  • dire：危急的; 极其严重的; 极差的; 极糟的
  • Thompson’s actions in running the worst-case scenario against the protests of the portfolio manager are in alignment with the principles of Standard I(B).
    • protest：n. 抗议; 反对; 抗议书(或行动); v. (公开)反对; 抗议; 坚决地表示; 申辩
  • Thompson did not allow his research to be pressured by the general trends of the market or the manager’s desire to limit the research to historical norms.
  • See also Standard V(A)–Diligence and Reasonable Basis.

    （8）Influencing Manager Selection Decisions（2 题）

• Adrian Mandel, CFA, is a senior portfolio manager for ZZYY Capital Management who oversees a team of investment professionals who manage labor union pension funds. A few years ago, ZZYY sought to win a competitive asset manager search to manage a significant allocation of the pension fund of the United Doughnut and Pretzel Bakers Union (UDPBU).

• UDPBU’s investment board is chaired by a recognized key decision maker and long-time leader of the union, Ernesto Gomez. To improve ZZYY’s chances of winning the competition, Mandel made significant monetary contributions to Gomez’s union reelection campaign fund. Even after ZZYY was hired as a primary manager of the pension, Mandel believed that his firm’s position was not secure.
• Mandel continued to contribute to Gomez’s reelection campaign chest as well as to entertain lavishly the union leader and his family at top restaurants on a regular basis. All of Mandel’s outlays were routinely handled as marketing expenses reimbursed by ZZYY’s expense accounts and were disclosed to his senior management as being instrumental in maintaining a strong close relationship with an important client.
• Comment:
  • reimburse：报销; 偿还; 补偿
  • instrumental：起重要作用; 用乐器演奏的; 为乐器谱写的
  • Mandel not only offered but actually gave monetary gifts, benefits, and other considerations that reasonably could be expected to compromise Gomez’s objectivity. Therefore, Mandel was in violation of Standard I(B).

• Adrian Mandel, CFA, had heard about the manager search competition for the UDPBU Pension Fund through a broker/dealer contact. The contact told him that a well-known retired professional golfer, Bobby “The Bear” Finlay, who had become a licensed broker/dealer serving as a pension consultant, was orchestrating the UDPBU manager search. Finlay had gained celebrity status with several labor union pension fund boards by entertaining their respective board members and regaling them with colorful stories of fellow pro golfers’ antics in clubhouses around the world.
• Mandel decided to improve ZZYY’s chances of being invited to participate in the search competition by befriending Finlay to curry his favor. Knowing Finlay’s love of entertainment, Mandel wined and dined Finlay at high-profile bistros where Finlay could glow in the fan recognition lavished on him by all the other patrons.
• Mandel’s endeavors paid off handsomely when Finlay recommended to the UDPBU board that ZZYY be entered as one of three finalist asset management firms in its search.

• Comment:

  • golfer：高尔夫球手; 高尔夫球运动员
  • orchestrate：编排; 策划; 编配(或创作管弦乐曲); 精心安排; 密谋
  • regale：极力取悦
  • antics：荒唐行为; 滑稽可笑的举止; 危险举动
  • befriend：做(尤指需要帮助者)的朋友; 友善对待
  • bistro：小酒馆; 小餐馆
  • Mandel lavished gifts, benefits, and other considerations in the form of expensive entertainment that could reasonably be expected to influence the consultant to recommend the hiring of his firm. Therefore, Mandel was in violation of Standard I(B).

    （9）Fund Manager Relationships

• Amie Scott is a performance analyst within her firm with responsibilities for analyzing the performance of external managers. While completing her quarterly analysis, Scott notices a change in one manager’s reported composite construction.

• The change concealed the bad performance of a particularly large account by placing that account into a new residual composite. This change allowed the manager to remain at the top of the list of manager performance. Scott knows her firm has a large allocation to this manager, and the fund’s manager is a close personal friend of the CEO.
• She needs to deliver her final report but is concerned with pointing out the composite change.

• Comment:

  • Scott would be in violation of Standard I(B) if she did not disclose the change in her final report.
  • The analysis of managers’ performance should not be influenced by personal relationships or the size of the allocation to the outside managers.
  • By not including the change, Scott would not be providing an independent analysis of the performance metrics for her firm.

    （10）Intrafirm Pressure

• Jill Stein is head of performance measurement for her firm. During the last quarter, many members of the organization’s research department were removed because of the poor quality of their recommendations. The subpar research caused one larger account holder to experience significant underperformance, which resulted in the client withdrawing his money after the end of the quarter.

• The head of sales requests that Stein remove this account from the firm’s performance composite because the performance decline can be attributed to the departed research team and not the client’s adviser.

• Comment:

  • subpar：低于标准的; 不到一般(或预期)水平的
  • Pressure from other internal departments can create situations that cause a member or candidate to violate the Code and Standards.
  • Stein must maintain her independence and objectivity and refuse to exclude specific accounts from the firm’s performance composites to which they belong.
  • As long as the client invested under a strategy similar to that of the defined composite, it cannot be excluded because of the poor stock selections that led to the underperformance and asset withdrawal.

    I(C) Misrepresentation

    （1）Disclosure of Issuer-Paid Research

• Anthony McGuire is an issuer-paid analyst hired by publicly traded companies to electronically promote their stocks. McGuire creates a website that promotes his research efforts as a seemingly independent analyst. McGuire posts a profile and a strong buy recommendation for each company on the website indicating that the stock is expected to increase in value. He does not disclose the contractual relationships with the companies he covers on his website, in the research reports he issues, or in the statements he makes about the companies in internet chat rooms.

• Comment:

  • McGuire has violated Standard I(C) because the website is misleading to potential investors.
  • Even if the recommendations are valid and supported with thorough research, his omissions regarding the true relationship between himself and the companies he covers constitute a misrepresentation.
  • McGuire has also violated Standard VI(A) – Disclosure of Conflicts by not disclosing the existence of an arrangement with the companies through which he receives compensation in exchange for his services.

    （2）Correction of Unintentional Errors

• Hijan Yao is responsible for the creation and distribution of the marketing materials for his firm, which claims compliance with the GIPS standards. Yao creates and distributes a presentation of performance by the firm’s Asian equity composite that states the composite has ¥350 billion in assets. In fact, the composite has only ¥35 billion in assets, and the higher figure on the presentation is a result of a typographical error.

• Nevertheless, the erroneous material is distributed to a number of clients before Yao catches the mistake.

• Comment:

  • Once the error is discovered, Yao must take steps to cease distribution of the incorrect material and correct the error by informing those who have received the erroneous information.
  • Because Yao did not knowingly make the misrepresentation, however, he did not violate Standard I(C).
  • Because his firm claims compliance with the GIPS standards, it must also comply with the GIPS Guidance Statement on Error Correction in relation to the error.

    （3）Noncorrection of Known Errors

• Syed Muhammad is the president of an investment management firm. The promotional material for the firm, created by the firm’s marketing department, incorrectly claims that Muhammad has an advanced degree in finance from a prestigious business school in addition to the CFA designation. Although Muhammad attended the school for a short period of time, he did not receive a degree. Over the years, Muhammad and others in the firm have distributed this material to numerous prospective clients and consultants.

• Comment:

  • Even though Muhammad may not have been directly responsible for the misrepresentation of his credentials in the firm’s promotional material, he used this material numerous times over an extended period and should have known of the misrepresentation. Thus, Muhammad has violated Standard I(C).

    （4）Plagiarism（5 题）

• Cindy Grant, a research analyst for a Canadian brokerage firm, has specialized in the Canadian mining industry for the past 10 years. She recently read an extensive research report on Jefferson Mining, Ltd., by Jeremy Barton, another analyst. Barton provided extensive statistics on the mineral reserves, production capacity, selling rates, and marketing factors affecting Jefferson’s operations. He also noted that initial drilling results on a new ore body, which had not been made public, might show the existence of mineral zones that could increase the life of Jefferson’s main mines, but Barton cited no specific data as to the initial drilling results. Grant called an officer of Jefferson, who gave her the initial drilling results over the telephone. The data indicated that the expected life of the main mines would be tripled. Grant added these statistics to Barton’s report and circulated it within her firm as her own report.

• Comment:
  • Grant plagiarized Barton’s report by reproducing large parts of it in her own report without acknowledgment.
  • ore：矿石; 矿; 矿砂

• Steve Swanson is a senior analyst in the investment research department of Ballard and Company. Apex Corporation has asked Ballard to assist in acquiring the majority ownership of stock in the Campbell Company, a financial consulting firm, and to prepare a report recommending that stockholders of Campbell agree to the acquisition.
• Another investment firm, Davis and Company, had already prepared a report for Apex analyzing both Apex and Campbell and recommending an exchange ratio. Apex has given the Davis report to Ballard officers, who have passed it on to Swanson. Swanson reviews the Davis report and other available material on Apex and Campbell. From his analysis, he concludes that the common stocks of Campbell and Apex represent good value at their current prices; he believes, however, that the Davis report does not consider all the factors a Campbell stockholder would need to know to make a decision. Swanson reports his conclusions to the partner in charge, who tells him to “use the Davis report, change a few words, sign your name, and get it out.”
• Comment:
  • If Swanson does as requested, he will violate Standard I(C).
  • He could refer to those portions of the Davis report that he agrees with if he identifies Davis as the source; he could then add his own analysis and conclusions to the report before signing and distributing it.

• Claude Browning, a quantitative analyst for Double Alpha, Inc., returns from a seminar in great excitement. At that seminar, Jack Jorrely, a well-known quantitative analyst at a national brokerage firm, discussed one of his new models in great detail, and Browning is intrigued by（对…感兴趣）the new concepts. He proceeds to test the model, making some minor mechanical changes but retaining the concepts, until he produces some very positive results. Browning quickly announces to his supervisors at Double Alpha that he has discovered a new model and that clients and prospective clients should be informed of this positive finding as ongoing proof of Double Alpha’s continuing innovation and ability to add value.
• Comment:
  • Although Browning tested Jorrely’s model on his own and even slightly modified it, he must still acknowledge the original source of the idea.
  • Browning can certainly take credit for the final, practical results; he can also support his conclusions with his own test. The credit for the innovative thinking, however, must be awarded to Jorrely.

• Fernando Zubia would like to include in his firm’s marketing materials some “plainlanguage” descriptions of various concepts, such as the price-to-earnings (P/E) multiple and why standard deviation is used as a measure of risk. The descriptions come from other sources, but Zubia wishes to use them without reference to the original authors. Would this use of material be a violation of Standard I(C)?
• Comment:
  • Copying verbatim any material without acknowledgement, including plain-language descriptions of the P/E multiple and standard deviation, violates Standard I(C).
    • verbatim：[vɜːrˈbeɪtɪm] 一字不差的报道; 逐字翻译
  • Even though these concepts are general, best practice would be for Zubia to describe them in his own words or cite the sources from which the descriptions are quoted. Members and candidates would be violating Standard I(C) if they either were responsible for creating marketing materials without attribution or knowingly use plagiarized materials.

• Through a mainstream media outlet, Erika Schneider learns about a study that she would like to cite in her research. Should she cite both the mainstream intermediary source as well as the author of the study itself when using that information?

• Comment:

  • In all instances, a member or candidate must cite the actual source of the information.
  • Best practice for Schneider would be to obtain the information directly from the author and review it before citing it in a report. In that case, Schneider would not need to report how she found out about the information.
  • For example, suppose Schneider read in the Financial Times about a study issued by CFA Institute; best practice for Schneider would be to obtain a copy of the study from CFA Institute, review it, and then cite it in her report.
  • If she does not use any interpretation of the report from the Financial Times and the newspaper does not add value to the report itself, the newspaper is merely a conduit of the original information and does not need to be cited.
    • conduit：[ˈkɑːnduɪt] (液体、气体或电线的)导管; 管道; 中转人; 中转机构; 中转国
  • If she does not obtain the report and review the information, Schneider runs the risk of relying on second-hand information that may misstate facts. If, for example, the Financial Times erroneously reported some information from the original CFA Institute study and Schneider copied that erroneous information without acknowledging CFA Institute, she could be the object of complaints.
  • Best practice would be either to obtain the complete study from its original author and cite only that author or to use the information provided by the intermediary and cite both sources.

    （5）Misrepresentation of Information

• When Ricki Marks sells mortgage-backed derivatives called “interest-only strips” (IOs) to public pension plan clients, she describes them as “guaranteed by the US government.” Purchasers of the IOs are entitled only to the interest stream generated by the mortgages, however, not the notional principal itself. One particular municipality’s investment policies and local law require that securities purchased by its public pension plans be guaranteed by the US government. Although the underlying mortgages are guaranteed, neither the investor’s investment nor the interest stream on the IOs is guaranteed. When interest rates decline, causing an increase in prepayment of mortgages, interest payments to the IOs’ investors decline, and these investors lose a portion of their investment.

• Comment:

  • Marks violated Standard I(C) by misrepresenting the terms and character of the investment.

    （6）Potential Information Misrepresentation

• Khalouck Abdrabbo manages the investments of several high-net-worth individuals in the United States who are approaching retirement. Abdrabbo advises these individuals that a portion of their investments be moved from equity to bank-sponsored certificates of deposit and money market accounts so that the principal will be “guaranteed” up to a certain amount. The interest is not guaranteed.

• Comment:

  • Although there is risk that the institution offering the certificates of deposits and money market accounts could go bankrupt, in the United States, these accounts are insured by the US government through the Federal Deposit Insurance Corporation. Therefore, using the term “guaranteed” in this context is not inappropriate as long as the amount is within the government-insured limit. Abdrabbo should explain these facts to the clients.

    （7）【IMP】Misrepresentation of Information

• Paul Ostrowski runs a two-person investment management firm. Ostrowski’s firm subscribes to a service from a large investment research firm that provides research reports that can be repackaged by smaller firms for those firms’ clients. Ostrowski’s firm distributes these reports to clients as its own work.

• Comment:
  • Ostrowski can rely on third-party research that has a reasonable and adequate basis, but he cannot imply that he is the author of such research. If he does, Ostrowski is misrepresenting the extent of his work in a way that misleads the firm’s clients or prospective clients.

• 【IMP】Tom Stafford is part of a team within Appleton Investment Management responsible for managing a pool of assets for Open Air Bank, which distributes structured securities to offshore clients. He becomes aware that Open Air is promoting the structured securities as a much less risky investment than the investment management policy followed by him and the team to manage the original pool of assets. Also, Open Air has procured an independent rating for the pool that significantly overstates the quality of the investments. Stafford communicates his concerns to his supervisor, who responds that Open Air owns the product and is responsible for all marketing and distribution. Stafford’s supervisor goes on to say that the product is outside of the US regulatory regime that Appleton follows and that all risks of the product are disclosed at the bottom of page 184 of the prospectus.

• Comment:

  • procure：获得，取得，得到; 诱使(妇女)卖淫
  • As a member of the investment team, Stafford is qualified to recognize the degree of accuracy of the materials that characterize the portfolio, and he is correct to be worried about Appleton’s responsibility for a misrepresentation of the risks. Thus, he should continue to pursue the issue of Open Air’s inaccurate promotion of the portfolio according to the firm’s policies and procedures.
  • The Code and Standards stress protecting the reputation of the firm and the sustainability and integrity of the capital markets. Misrepresenting the quality and risks associated with the investment pool may lead to negative consequences for others well beyond the direct investors.

    （8）Avoiding a Misrepresentation

• Trina Smith is a fixed-income portfolio manager at a pension fund. She has observed that the market for highly structured mortgages is the focus of salespeople she meets and that these products represent a significant number of trading opportunities. In discussions about this topic with her team, Smith learns that calculating yields on changing cash flows within the deal structure requires very specialized vendor software.

• After more research, they find out that each deal is unique and that deals can have more than a dozen layers and changing cash flow priorities. Smith comes to the conclusion that, because of the complexity of these securities, the team cannot effectively distinguish between potentially good and bad investment options. To avoid misrepresenting their understanding, the team decides that the highly structured mortgage segment of the securitized market should not become part of the core of the fund’s portfolio; they will allow some of the less complex securities to be part of the core.

• Comment:

  • Smith is in compliance with Standard I(C) by not investing in securities that she and her team cannot effectively understand. Because she is not able to describe the risk and return profile of the securities to the pension fund beneficiaries and trustees, she appropriately limits the fund’s exposure to this sector.

    （9）Misrepresenting Composite Construction

• Robert Palmer is head of performance for a fund manager. When asked to provide performance numbers to fund rating agencies, he avoids mentioning that the fund manager is quite liberal in composite construction. The reason accounts are included/excluded is not fully explained. The performance values reported to the rating agencies for the composites, although accurate for the accounts shown each period, may not present a true representation of the fund manager’s ability.

• Comment:

  • “Cherry picking” accounts to include in either published reports or information provided to rating agencies conflicts with Standard I(C).
  • Moving accounts into or out of a composite to influence the overall performance results materially misrepresents the reported values over time.
  • Palmer should work with his firm to strengthen its reporting practices concerning composite construction to avoid misrepresenting the firm’s track record or the quality of the information being provided.
  • liberal：
    • adj. (政治经济上)自由的; (英国以外国家)自由党的; 开明的; 人文（教育）的; 慷慨的; 支持(社会、政治或宗教)变革的; (旧时)英国自由党的; 心胸宽阔的; 宽宏大度的
    • n. 开明的人; (英国以外国家的)自由党成员; 宽容的人; 理解且尊重他人意见的人; 支持(社会、政治或宗教)变革的人; (旧时)英国自由党成员

      （10）Presenting Out-of-Date Information

• David Finch is a sales director at a commercial bank, where he directs the bank’s client advisers in the sale of third-party mutual funds. Each quarter, he holds a division-wide training session where he provides fact sheets on investment funds the bank is allowed to offer to clients. These fact sheets, which can be redistributed to potential clients, are created by the fund firms and contain information about the funds, including investment strategy and target distribution rates.

• Finch knows that some of the fact sheets are out of date; for example, one longonly fund approved the use of significant leverage last quarter as a method to enhance returns. He continues to provide the sheets to the sales team without updates because the bank has no control over the marketing material released by the mutual fund firms.

• Comment:

  • Finch is violating Standard I(C) by providing information that misrepresents aspects of the funds. By not providing the sales team and, ultimately, the clients with the updated information, he is misrepresenting the potential risks associated with the funds with outdated fact sheets.
  • Finch can instruct the sales team to clarify the deficiencies in the fact sheets with clients and ensure they have the most recent fund prospectus document before accepting orders for investing in any fund.

    （11）Overemphasis of Firm Results

• Bob Anderson is chief compliance officer for Optima Asset Management Company, a firm currently offering eight funds to clients. Seven of the eight had 10-year returns below the median for their respective sectors. Anderson approves a recent advertisement, which includes this statement: “Optima Asset Management is achieving excellent returns for its investors. The Optima Emerging Markets Equity fund, for example, has 10-year returns that exceed the sector median by more than 10%.”

• Comment:

  • From the information provided it is difficult to determine whether a violation has occurred as long as the sector outperformance is correct.
  • Anderson may be attempting to mislead potential clients by citing the performance of the sole fund that achieved such results.
  • Past performance is often used to demonstrate a firm’s skill and abilities in comparison to funds in the same sectors. However, if all the funds outperformed their respective benchmarks, then Anderson’s assertion that the company “is achieving excellent returns” may be factual. Funds may exhibit positive returns for investors, exceed benchmarks, and yet have returns below the median in their sectors.
  • Members and candidates need to ensure that their marketing efforts do not include statements that misrepresent their skills and abilities to remain compliant with Standard I(C). Unless the returns of a single fund reflect the performance of a firm as a whole, the use of a singular fund for performance comparisons should be avoided.

    I(D) Misconduct

    （1）Professionalism and Competence

• Simon Sasserman is a trust investment officer at a bank in a small affluent town. He enjoys lunching every day with friends at the country club, where his clients have observed him having numerous drinks. Back at work after lunch, he clearly is intoxicated while making investment decisions. His colleagues make a point of handling any business with Sasserman in the morning because they distrust his judgment after lunch.

• Comment:

  • affluent：adj. 富裕的; n. 富裕的人; 支流
  • Sasserman’s excessive drinking at lunch and subsequent intoxication at work constitute a violation of Standard I(D) because this conduct has raised questions about his professionalism and competence.
    • intoxication：中毒; 醉酒; 喝醉; 令人极度兴奋的特质
    • intoxicated：陶醉的; 喝醉的; (毒品)麻醉的; 极度兴奋的; 忘乎所以的
  • His behavior reflects poorly on him, his employer, and the investment industry.

    （2）Fraud and Deceit

• Howard Hoffman, a security analyst at ATZ Brothers, Inc., a large brokerage house, submits reimbursement forms over a two-year period to ATZ’s self-funded health insurance program for more than two dozen bills, most of which have been altered to increase the amount due. An investigation by the firm’s director of employee benefits uncovers the inappropriate conduct. ATZ subsequently terminates Hoffman’s employment and notifies CFA Institute.

• Comment:
  • reimbursement：报销; 补偿; 赔偿; 偿付
  • Hoffman violated Standard I(D) because he engaged in intentional conduct involving fraud and deceit in the workplace that adversely reflected on his integrity.

• Jody Brink, an analyst covering the automotive industry, volunteers much of her spare time to local charities. The board of one of the charitable institutions decides to buy five new vans to deliver hot lunches to low-income elderly people. Brink offers to donate her time to handle purchasing agreements. To pay a long-standing debt to a friend who operates an automobile dealership — and to compensate herself for her trouble — she agrees to a price 20% higher than normal and splits the surcharge with her friend. The director of the charity ultimately discovers the scheme and tells Brink that her services, donated or otherwise, are no longer required.

• Comment:

  • Brink engaged in conduct involving dishonesty, fraud, and misrepresentation and has violated Standard I(D).
  • charity：[ˈtʃærəti] 慈善; 慈善机构(或组织); 施舍; 仁爱; 宽容; 赈济; 宽厚
  • van：
    • n. 面包车; 厢式货车; 客货车; （铁路上运送包裹、邮件等的）车厢; 前卫，前锋; 先锋，前驱; <英>（吉卜赛人的）大篷车; 轻型（或小吨位）汽车; （卡车的）拖挂载客车厢; （飞机的）旅客吊舱; <主英>（网球）优势分
    • v. 选（矿）；用车搬运（货物）; 搭货车旅行
  • surcharge：n. 附加费; 额外费用; 增收费; vt. 向(某人)收取额外费用

    （3）Personal Actions and Integrity

• Carmen Garcia manages a mutual fund dedicated to socially responsible investing. She is also an environmental activist. As the result of her participation in nonviolent protests, Garcia has been arrested on numerous occasions for trespassing on the property of a large petrochemical plant that is accused of damaging the environment.

• Comment:

  • trespass：vi. 非法侵入; 擅自进入(他人的土地或建筑物); 做错事; n. 罪过; 非法侵入(他人土地)
  • petrochemical：n. 石油化工; 石油化学产品 adj. 石油化学的; 岩石化学的
  • Generally, Standard I(D) is not meant to cover legal transgressions resulting from acts of civil disobedience（非暴力反抗; 不合作主义; 温和抵抗） in support of personal beliefs because such conduct does not reflect poorly on the member’s or candidate’s professional reputation, integrity, or competence.
    • transgression：违反; 越界; 逾越; 侵犯; 过犯; 犯罪

      （4）Professional Misconduct

• Meredith Rasmussen works on a buy-side trading desk of an investment management firm and concentrates on in-house trades for a hedge fund subsidiary managed by a team at the investment management firm. The hedge fund has been very successful and is marketed globally by the firm. From her experience as the trader for much of the activity of the fund, Rasmussen has become quite knowledgeable about the hedge fund’s strategy, tactics, and performance. When a distinct break in the market occurs and many of the securities involved in the hedge fund’s strategy decline markedly in value, Rasmussen observes that the reported performance of the hedge fund does not reflect this decline. In her experience, the lack of effect is a very unlikely occurrence.

• She approaches the head of trading about her concern and is told that she should not ask any questions and that the fund is big and successful and is not her concern. She is fairly sure something is not right, so she contacts the compliance officer, who also tells her to stay away from the issue of the hedge fund’s reporting.
• Comment:
  • Rasmussen has clearly come across an error in policies, procedures, and compliance practices within the firm’s operations. According to the firm’s procedures for reporting potentially unethical activity, she should pursue the issue by gathering some proof of her reason for doubt. Should all internal communications within the firm not satisfy her concerns, Rasmussen should consider reporting the potential unethical activity to the appropriate regulator.
  • See also Standard IV(A) for guidance on whistleblowing and Standard IV(C) for the duties of a supervisor.