Preston Partners Case Study (Refer to CFA Institute Standards of Practice Casebook for details).

Preston Partners is a medium-sized investment management rm which adopted the Code and Standards

as part of its policy manual. Gerald Smithson, CFA, a portfolio manager, had recently added the stock of

Utah Biochemical Company and Norgood PLC to all his clients' investment portfolios. Smithson had a

personal relationship with the president of Utah Biochemical. Shortly afterwards Utah Biochemicals and

Norgood announced a merger which increased the share prices of both companies.

Smithson contends that he saw the president of Utah Biochemical dining with the chairman of Norgood

but did not overhear their conversation. Smithson researched both companies extensively and

determined that each company was a good investment. He also pondered whether there would be a

merger as they seemed to complement each other. He put in block trades for shares of each company

which were executed over a period of two weeks at various prices. Preston's policies were not clear in this
area so he allocated the shares by starting with his largest client and working down to small accounts.

Some of Smithson's clients were very conservative personal trust accounts; others were pension funds

which had aggressive investment objectives.

Question #1 - 2 of 27 Question ID: 1208136

Regarding their supervisory duties, which of the following elements of Preston's behavior was NOT a

violation of the CFA Institute Standards of Practice? Preston did not violate:

A) Standard III(B) when he allowed portfolio managers to place block trades at di erent prices.

B) Standard IV(C) when he failed to have complete and proper supervisory procedures in place.

C) Standard IV(C) when he put in place a procedure that uncovers violations of Standards by
employees but does not prevent violations.

Question #2 - 2 of 27 Question ID: 1208137

Which of the following statements concerning the actions of Smithson or Preston Partners is least
accurate?

A) Smithson did not violate Standard II(A) prohibition against the use of material nonpublic
information.

B) Preston violated Standard IV(C) for not putting into place adequate supervisory procedures.

C) Smithson did not violate any Standards since he consulted with the Preston company manual for
allocating trades.

Question #3 of 27 Question ID: 1208138

Jim Jones is an equity research analyst at Gamma funds. Because of his expertise in the
telecommunications eld, a Chinese telecommunications provider hires Jones as a consultant to help them

identify potential investors. According to the Standards of Professional Conduct IV(A) related to duties to
employer, Jones must:

A) refuse this consulting arrangement.

B) describe to his employer in detail the activities related to this consulting arrangement.

C) obtain verbal permission from his employer to engage in this consulting arrangement.

Question #4 of 27 Question ID: 1208133

Glenarm Case Study (Refer to CFA Institute Standards of Practice Casebook for details.)

Peter Sherman, CFA, has recently joined Glenarm Company after spending 5 years at Pearl Investment
Management. He is responsible for identifying potential Latin American investments. Previously, Sherman
held jobs as consultant for many Latin American companies and had plans to continue such consulting
jobs without disclosing anything to Glenarm.

After resigning, but before leaving his employment at Pearl, Sherman had encouraged Pearl customers to
move their accounts to Glenarm. He contacted accounts Pearl had been soliciting for business. He also
contacted potential clients that Pearl had rejected in the past as too small or incompatible with the rm's

business. Furthermore, he convinced several of Pearl's clients and prospects to hire Glenarm after he
joined the company. He also identi ed materials from Pearl to take with him, such as:

1. sample marketing presentations he had prepared

2. computer program models for stock selection

3. research materials on companies he had been following
4. a list of companies recommended by Sherman for potential investment, but which were rejected by
Pearl

5. news articles for potential research ideas

Upon Sherman's joining Glenarm, which of the following acts did NOT violate the standards?

A) He did not give Glenarm a written statement disclosing his independent consulting practice and
details of activities that resulted in compensation since they had already been approved by Pearl-
hi i l
B) He allowed Glenarm to advertise the fact that they had hired a portfolio manager who was a CFA
charterholder.

C) He misappropriated news articles from his old employer.

Question #5 of 27 Question ID: 1208162

Patricia Spraetz is the chief nancial o cer and compliance o cer at Super Selection Investment
Advisors.  Super Selection is a medium-sized money management rm which has incorporated the CFA
Institute Code of Ethics and Standards of Practice into the rm's compliance manual.

Karen Jackson is a portfolio manager for Super Selection.  She is not a CFA charterholder.  Jackson is
friendly with David James, president of AMD, a rapidly growing biotech company.  James has provided
Jackson with recommendations in the biotech industry, which she buys for her own portfolio before
buying them for her clients.  For three years, Jackson has also served on AMD's board of directors.  She

has received options and fees as compensation.

Recently, the board of AMD decided to raise capital by voting to issue shares to the public. This was
attractive to board members (including Jackson) who wanted to exercise their stock options and sell their
shares to get cash.  When the demand for initial public o erings (IPO) diminished, just before AMD's public

o ering, James asked Jackson to commit to a large purchase of the o ering for her portfolios.  Jackson had
previously determined that AMD was a questionable investment but agreed to reconsider at James'
request.  Her reevaluation con rmed the stock to be overpriced, but she nevertheless decided to purchase
AMD for her clients' portfolios.

Which of the following actions are most appropriate for Spraetz?

A) Spraetz, as the chief compliance o cer, must set company policy in clear terms and monitor the
actions of the employees. In case of violations, she should investigate thoroughly, initiate
di i li i di id li h b f ll di d f
B) If, after her investigation Spraetz nds that Jackson has committed violations, Spraetz must report
them to senior management and seek legal counsel for possible legal and regulatory
i li i f h d f ll h h d k i S h
C) Even though Spraetz does not supervise Jackson, as the compliance o cer of the rm she is
responsible for identifying violations. Spraetz is not responsible for preventing them and should
b d h i d i f i h h h ld d h

Glenarm Case Study (Refer to CFA Institute Standards of Practice Casebook for details.)

Peter Sherman, CFA, has recently joined Glenarm Company after spending 5 years at Pearl Investment
Management. He is responsible for identifying potential Latin American investments. Previously, Sherman
held jobs as a consultant for many Latin American companies and had plans to continue such consulting
jobs without disclosing anything to Glenarm.

After resigning, but before leaving his employment at Pearl, Sherman had encouraged Pearl customers to
move their accounts to Glenarm. He contacted accounts Pearl had been soliciting for business. He also
contacted potential clients that Pearl had rejected in the past as too small or incompatible with the rm's
business. Furthermore, he convinced several of Pearl's clients and prospects to hire Glenarm after he

joined Glenarm. He also identi ed materials from Pearl to take with him, such as:

1. Sample marketing presentations he had prepared.

2. Computer program models for stock selection.
3. Research materials on companies he had been following.
4. A list of companies recommended by Sherman for potential investment which were rejected by
Pearl.
5. News articles for potential research ideas.
Question #6 - 7 of 27 Question ID: 1208148

Which of the following statements concerning Sherman's actions is CORRECT?

A) Sherman did not violate Standard IV(A) by soliciting clients that were rejected by Pearl either
because they were too small or unsuitable as long as winning their business did not adversely
l
B) Sherman did not violate any Standard by taking away the news articles from his previous
employer, Pearl, for potential research ideas.

C) Sherman did not violate Standard IV(A) since members can engage in independent consulting
practice as long as their employer policy does not speci cally prohibit it.

Question #7 - 7 of 27 Question ID: 1208149

Sherman's attempt to lure away clients from Pearl while he was still employed at Pearl is:

A) not a violation of Standard V(A) because it was conducted "after hours" on Sherman's own time.

B) not a violation of Standard IV(A) because they would have followed Sherman to his new rm
anyway, and no harm to Pearl was done as a result.

C) a violation of Standard IV(A) because it undermined Pearl's business and its pro t opportunities
and caused damage to Pearl's business.

Question #8 of 27 Question ID: 1208161

Patricia Spraetz is the chief nancial o cer and compliance o cer at Super Selection Investment Advisors.
Super Selection is a medium-sized money management rm which has incorporated the CFA Institute
Code of Ethics and Standards of Practice into the rm's compliance manual.

Karen Jackson is a portfolio manager for Super Selection. She is not a CFA charterholder. Jackson is
friendly with David James, president of AMD, a rapidly growing biotech company. James has provided
Jackson with recommendations in the biotech industry, which she buys for her own portfolio before
buying them for her clients. For three years, Jackson has also served on AMD's board of directors but has

never noti ed Super Selection of this fact. She has received options and fees as compensation.

Recently, the board of AMD decided to raise capital by voting to issue shares to the public. This was
attractive to board members (including Jackson) who wanted to exercise their stock options and sell their
shares to get cash. When the demand for initial public o erings (IPO) diminished, just before AMD's public
o ering, James asked Jackson to commit to a large purchase of the o ering for her portfolios. Jackson had
previously determined that AMD was a questionable investment but agreed to reconsider at James'
request. Her reevaluation con rmed the stock to be overpriced, but she nevertheless decided to purchase
AMD for her clients' portfolios.

 Which of the following statements is NOT correct?

A) Jackson did not violate Standard III(A) on Fiduciary Duty to clients because she was bound by her
duciary duty to AMD and its stockholders as a board member. Therefore, when she reversed her
d i i b A h f S S l i li f li h
B) Jackson violated Standard IV(B) regarding Disclosure of Additional Compensation by not disclosing
additional compensation in the form of cash and stock options received from AMD, as its board
b h l
C) Jackson violated Standard VI(A) regarding Con icts of interest by not disclosing her board
membership and ownership of stock options to her employer.

Question #9 of 27 Question ID: 1208153

Preston Partners Case Study (Refer to CFA Institute Standards of Practice Casebook for details).

Preston partners is a medium-sized investment management rm which adopted the Code and Standards
as part of its policy manual. Gerald Smithson, CFA, a portfolio manager, had recently added the stock of
Utah Biochemical Company and Norgood PLC to all his clients' investment portfolios. Smithson had a
personal relationship with the president of Utah Biochemical. Shortly afterwards Utah Biochemicals and
Norgood announced a merger which increased the share prices of both companies.

Smithson contends that he saw the president of Utah Biochemical dining with the chairman of Norgood
but did not overhear their conversation. Smithson researched both companies extensively and

determined that each company was a good investment. He also pondered whether there would be a
merger as they seemed to complement each other. He put in block trades for shares of each company
which were executed over a period of two weeks at various prices. Preston's policies were not clear in this
area so he allocated the shares by starting with his largest client and working down to small accounts.

Some of Smithson's clients were very conservative personal trust accounts; others were pension funds
which had aggressive investment objectives.

Which of the following statements is CORRECT?

A) Smithson failed to comply with Standard III(C) regarding suitability of investments for clients
portfolios.

B) Utah Biochemical was an appropriate investment for Preston's personal trust accounts.

C) Smithson acted on inside information because he had observed senior executives of Norgood and
Utah Biochemical having lunch together, in violation of Standard II(A).

Question #10 of 27 Question ID: 1208163

Karen Jackson is a portfolio manager. Jackson is friendly with David James, president of Acme Medical, a
rapidly growing biotech company. James has provided Jackson with recommendations in the biotech
industry, which she buys for her own portfolio before buying them for her clients. For three years, Jackson
has also served on Acme Medical's board of directors. She has received options and fees as compensation.

Recently, the board of Acme Medical decided to raise capital by voting to issue shares to the public. This
was attractive to board members (including Jackson) who wanted to exercise their stock options and sell
their shares to get cash. When the demand for initial public o erings (IPO) diminished, just before Acme
Medical's public o ering, James asked Jackson to commit to a large purchase of the o ering for her
portfolios. Jackson had previously determined that Acme Medical was a questionable investment but
agreed to reconsider at James' request. Her reevaluation con rmed the stock to be overpriced, but she
nevertheless decided to purchase Acme Medical for her clients' portfolios.

Did Jackson violate Standard III(C) Suitability concerning portfolio recommendations and actions?

A) Yes, because she did not consider the appropriateness and suitability of investment
recommendations or actions for each portfolio or client.

B) Yes, because she did not deal fairly with all clients.

C) No.
Question #11 of 27 Question ID: 1208139

Glenarm Case Study (Refer to CFA Institute's Standards of Practice Casebook for details.)

Peter Sherman, CFA, has recently joined Glenarm Company after spending 5 years at Pearl Investment
Management. He is responsible for identifying potential Latin American investments. Previously, Sherman
held jobs as consultant for many Latin American companies and had plans to continue such consulting
jobs without disclosing anything to Glenarm.

After resigning, but before leaving his employment at Pearl, Sherman had encouraged Pearl customers to
move their accounts to Glenarm. He contacted accounts Pearl had been soliciting for business. He also
contacted potential clients that Pearl had rejected in the past as too small or incompatible with the rm's
business. Furthermore, he convinced several of Pearl's clients and prospects to hire Glenarm after he

joined the company. He also identi ed materials from Pearl to take with him, such as:

1. sample marketing presentations he had prepared

2. computer program models for stock selection
3. research materials on companies he had been following
4. a list of companies recommended by Sherman for potential investment, but which were rejected by
Pearl
5. news articles for potential research ideas

Under the obligation to act in the best interest of the employer while still an employee, Sherman's actions
constitute the following violations except:

A) leaving Pearl to join a possible competitor—violation of Standard IV(A), Loyalty to Employer.

B) solicitation of potential clients of Pearl—violation of Standard IV(A).

C) solicitation of clients while still employed by Pearl—violation of Standard IV(A).

Question #12 of 27 Question ID: 1208132

Alpha Asset Management manages portfolios for clients with more than $10 million in assets. Bob Smith, a
portfolio manager at Alpha, is planning to leave Alpha to set up company Beta Investment Management,
to focus exclusively on clients with less than $10 million in assets. While he is still employed at Alpha,
Smith begins to solicit (on his own time) potential clients with less than $10 million in assets – clients that
Alpha has previously rejected for being too small. According to the Standards of Professional Conduct IV(A)
related to duties to employer, Smith's solicitation of these clients is:

A) unacceptable since the fact the Beta will not be in competition with Alpha is irrelevant.

B) unacceptable as he may not engage in any activities to go into business while he is still employed
by Alpha.

C) acceptable as he is not in competition with his current employer.

Preston Partners Case Study (Refer to CFA Institute Standards of Practice Casebook for details).

Preston partners is a medium-sized investment management rm which adopted the Code and Standards
as part of its policy manual. Gerald Smithson, CFA, a portfolio manager, had recently added the stock of
Utah Biochemical Company and Norgood PLC to all his clients' investment portfolios. Smithson had a
personal relationship with the president of Utah Biochemical. Shortly afterwards Utah Biochemicals and
Norgood announced a merger which increased the share prices of both companies.

Smithson contends that he saw the president of Utah Biochemical dining with the chairman of Norgood
but did not overhear their conversation. Smithson researched both companies extensively and
determined that each company was a good investment. He also pondered whether there would be a
merger as they seemed to complement each other. He put in block trades for shares of each company
which were executed over a period of two weeks at various prices. Preston's policies were not clear in this
area so he allocated the shares by starting with his largest client and working down to small accounts.
Some of Smithson's clients were very conservative personal trust accounts; others were pension funds
which had aggressive investment objectives.

Question #13 - 14 of 27 Question ID: 1208151

Select the most appropriate policy statement for Preston regarding Standard IV(C) concerning
Responsibilities of Supervisors.

A) "Preston employees who are in supervisory roles will be held accountable for the actions of those
who report to them in matters of compliance with the policies and procedures of Preston.
S i ill l b h ld ibl f li ih ii l d l i b
B) "Preston employees who are in supervisory roles will not be accountable for the actions of those
who report to them in matters of compliance with the policies and procedures of Preston.
i ill b h ld ibl f li ih ii l d l i
C) "Preston employees who are in supervisory roles will be held accountable for the actions of those
who report to them in matters of compliance with the policies and procedures of Preston.
S i ill b h ld ibl f li ih ii l d l i b

Question #14 - 14 of 27 Question ID: 1208152

Select the most appropriate policy statement for Preston regarding Standard III(B) concerning Fair Dealing
for allocation of block trades.

A) "Preston shall not discriminate against any client account, and all clients will receive the same
price for order execution and will be charged the same commission, if applicable. Block trades will
b ll d b f i di l f h i f h bl k d
B) "Preston shall not discriminate against any client account, and all clients will receive the same
price for order execution and will be charged the same commission, if applicable. However, larger
li h bl b ll d d f i lb i i ih
C) "Preston shall not discriminate against any client account, and all clients will receive the same
price, adjusted for quantity discounts, for order execution and will be charged commissions based
b f h ll d l k d ill b ll d b f i di l f
Jacques Claudel, a CFA Institute member, represents Vector Funds, a U.S.-based fund manager, in Canada.
Although Vector Funds is properly licensed to deal in all Canadian and U.S. securities, its primary objective
is to sell United States funds to Canadian institutional investors seeking diversi cation into the U.S. dollar.
While it would be willing to do so if requested by its clients, Vector has not placed trades in Canadian
securities since Claudel began working there two years ago.

Prior to joining Vector's Canadian operations, Claudel was an independent asset manager handling the
funds of wealthy individuals and small institutions. Most of these accounts remain under his management,
under the business name Coup de Gras. Claudel is unclear as to whether his consulting work is in

competition with his new employer, as the accounts under his management are invested strictly in
Canadian securities, while Vector has not traded Canadian securities. However, just to be on the safe side,
he obtained written permission from Vector to continue serving his former clients. His former clients were
not noti ed.

Claudel receives cash compensation for most of the accounts he handles independently, but for one he
receives a new car for his personal use every two years, and for another he is compensated with a one-
week, expenses-paid holiday in the European country of his choice.

As part of his responsibility, Claudel makes trades for some of his Canadian clients. He runs all of his
trades through two brokers, Ace Equity Traders and the Parlay Group. Ace o ers some of the best
research available on health-care stocks, but charges fairly hefty commissions. Parley has some of the
cheapest commissions in Toronto, but provides no research of value to Claudel. Vector claims compliance
with the CFA Institute Soft Dollar Standards.

Henri Bonnet, CFA, a friend of Claudel's, works on the oor of the Vancouver Stock Exchange. He asks
Claudel to establish an account for him at Coup de Gras. Claudel learns that it is Bonnet's intention to
manipulate the prices of penny stocks he trades on the exchange, and pro t from the price movements in
the account at Coup de Gras. Claudel sets up the account, but advises Bonnet that he "will have nothing to
do" with the manipulation scheme beyond placing trades as Bonnet directs.

Claudel is currently pursuing a master's degree in nancial economics in the evenings. During the
interview with Vector and on his resume he indicated that he "attended Victoria University," giving his
estimated date of graduation. He is not sure whether Vector understood that he did not have his master's
degree.

Question #15 - 20 of 27 Question ID: 1208141

Which of the following statements about consulting work is CORRECT?

A) In some circumstances the employee must receive the employer's written permission prior to
receiving additional compensation from parties other than the rm. This requirement applies to
b h d i
B) In some circumstances the employee must receive the employer's written permission prior to
receiving additional compensation from parties other than the rm. This requirement applies to
i l
C) In all cases the employee must receive the employer's written permission prior to receiving
additional compensation from parties other than the rm. This requirement applies to both
d i
Question #16 - 20 of 27 Question ID: 1208142

Should Claudel decide to terminate his relationship with Vector, which of the following items can he NOT
take with him?

A) His Rolodex full of contacts in the brokerage and money-management business.

B) A list of consulting clients, with addresses and phone numbers.

C) A marketing presentation he developed for Vector, but uses primarily in his side business.

Question #17 - 20 of 27 Question ID: 1208143

Claudel's statement about his education background is:

A) truthful, but not in accord with the Code and Standards.

B) not truthful, and not in accord with the Code and Standards.

C) truthful, and in accord with the Code and Standards.

Question #18 - 20 of 27 Question ID: 1208144

Which of the following statements is CORRECT?

A) Bonnet has violated Standard III(B): Fair Dealing, and Claudel has violated Standard I(B):
Independence and Objectivity.

B) Bonnet has violated Standard II(A): Material Nonpublic Information, and Claudel has not violated
Standard III(A): Loyalty, Prudence, and Care.

C) Bonnet has violated Standard IV(A): Loyalty to Employer, and Claudel has violated Standard I(A):
Knowledge of the Law.

Question #19 - 20 of 27 Question ID: 1208145

With regard to his consulting work, Claudel is:

A) in competition with Vector because he advises individual investors, and not in compliance with the
Code and Standards.

B) in competition with Vector because he advises individual investors, and in compliance with the
Code and Standards.

C) not in competition with Vector because Vector doesn’t trade Canadian securities, and in
compliance with the Code and Standards.
Question #20 - 20 of 27 Question ID: 1208146

Assuming that both Ace Equity Traders and the Parlay Group o er best execution, Claudel:

A) can select the broker that refers the most business back to him, as long as any research
purchased bene ts the client whose account is being traded.

B) must direct all the trades for clients who do not wish to own health-care stocks to the Parlay
Group.

C) must disclose to clients whether client-directed brokerage will prevent him from getting the best
execution.

Sean O'Brien, CFA, works for Paradigm Portfolios as a portfolio manager. He manages a high-yield (junk
bond) fund as well as 14 large private accounts. O'Brien's compensation for the high-yield fund is
performance based, while the private-account compensation is based upon a percentage of assets. The
company's compensation packages are a closely guarded secret, and kept in-house.

When placing trades, O'Brien often uses the services of Junk Specialist Securities. The rm has the
reputation for the best high-yield research on the Street, high trading commissions, and best execution.
O'Brien sometimes "pays up" on trades to obtain research. He uses the research in managing all accounts
under his purview. These trades are allocated equitably over all accounts.

O'Brien routinely takes personal positions in securities held in the high-yield fund, a practice allowed by
Paradigm. On his way to work, he learns over the radio that a hurricane is heading toward the location of

Villa Real Resorts in Mexico. Landfall is expected by Dec. 23, which could potentially ruin the lucrative
Christmas vacation season. If the hurricane hits as expected, it will have a devastating a ect on cash ows,

and O'Brien believes Villa Real might default on its bonds. Both O'Brien and the high-yield fund hold Villa
Real bonds. After arriving at the o ce, O'Brien sells o the fund's Villa Real holdings, then immediately

liquidates his own position.

Periodically O'Brien buys convertible bonds in the high-yield fund. When these are converted into common

equity he typically does not vote the proxies, saying, "the fund is not an equity fund, and the equities are
usually sold within the year."

Before accepting a new account, O'Brien conducts a thorough investigation into his client's nancial
situation, investment experience, and investment objectives. The information is updated annually through

a survey mailed to the client and returned to Paradigm, and O'Brien follows up with a telephone call to the
client. Judy Smith's portfolio was deemed suitable for the inclusion of high-yield bonds based upon the

initial investigation, and rea rmed at the last three annual updates. It is three months since Smith's last
annual update, and the high-yield market has been weak. Smith les a lawsuit alleging malfeasance on the

part of O'Brien.

O'Brien regularly attends analyst meetings. During the course of many of these meetings, he is observed

consuming several highballs. On afternoons following the meetings he is easily angered and at times
belligerent. However, his investment prowess does not seem to diminish.
In the course of e ecting money-market transactions for the accounts, O'Brien routinely places numerous

trades, allocating the paper with marginally higher yields to the high-yield fund and the remainder to the
private accounts.

Question #21 - 26 of 27 Question ID: 1208155

With regard to the Smith account, O'Brien's actions are best described as being in:

A) violation of Standard V(B) - Communication with Clients and Prospective Clients.

B) compliance with all applicable CFA Institute Standards.

C) violation of Standard III(A) - Loyalty, Prudence, and Care.

Question #22 - 26 of 27 Question ID: 1208156

O'Brien's drinking at analyst meetings and subsequent conduct is:

A) in violation of Standard I(B): Independence and Objectivity.

B) in violation of Standard IV(A): Loyalty to Employer, because his drinking deprives the company of
quality work.

C) in violation of Standard I(D): Misconduct because it re ects adversely on his professional

competence.

Question #23 - 26 of 27 Question ID: 1208157

Which of the following statements about O'Brien's use of convertible bonds is CORRECT?

A) O’Brien’s lack of expertise in equity analysis, despite usage of the CFA mark, represents a violation
of Standard VII(A): Conduct as Members and Candidates in the CFA Program.

B) The use of convertible bonds in O’Brien’s high-yield fund violates Standard V(A): Diligence and
Reasonable Basis.

C) Unless O’Brien makes arrangements for someone else to vote the proxies, he is in violation of
Standard III(A): Loyalty, Prudence, and Care.

Question #24 - 26 of 27 Question ID: 1208158

With regard to the Villa Real investment, O'Brien's actions:

A) do not violate the duciary-duties Standard but do violate the priority-of-transactions Standard.
B) violate neither the reasonable-basis Standard nor the priority-of-transactions Standard.

C) violate the reasonable-basis Standard and the duciary-duties Standard.

Question #25 - 26 of 27 Question ID: 1208159

O'Brien's money-market allocations represent:

A) a breach of his duciary duty to mutual-fund account owners.

B) a violation of Standard III(B): Fair Dealing.

C) reasonable actions, as they simply re ect the nature of his compensation.

Question #26 - 26 of 27 Question ID: 1208160

The practice of "paying up" for the research is:

A) OK for the fund and OK for the private accounts.

B) not OK for the fund and not OK for the private accounts.

C) OK for the fund but not OK for the private accounts.

Question #27 of 27 Question ID: 1208134

Patricia Spraetz is the chief nancial o cer and compliance o cer at Super Selection Investment

Advisors. Super Selection is a medium-sized money management rm which has incorporated the CFA
Institute Code of Ethics and Standards of Practice into the rm's compliance manual.

Karen Jackson is a portfolio manager for Super Selection. She is not a CFA charterholder. Jackson is

friendly with David James, president of AMD, a rapidly growing biotech company. James has provided

Jackson with recommendations in the biotech industry, which she buys for her own portfolio before
buying them for her clients. For three years, Jackson has also served on AMD's board of directors. She has

received options and fees as compensation.

Recently, the board of AMD decided to raise capital by voting to issue shares to the public.  This was
attractive to board members (including Jackson) who wanted to exercise their stock options and sell their

shares to get cash. When the demand for initial public o erings (IPO) diminished, just before AMD's public
o ering, James asked Jackson to commit to a large purchase of the o ering for her portfolios. Jackson had

previously determined that AMD was a questionable investment but agreed to reconsider at James'

request. Her reevaluation con rmed the stock to be overpriced, but she nevertheless decided to purchase
AMD for her clients' portfolios.

Which of the following statements concerning Super Selection is CORRECT?

A) All employees of a rm are bound by CFA Institute's Code and Standards if they are incorporated
in the company's policies manual, and the rm subscribes to them explicitly.

B) Jackson did not violate the CFA Institute Code of Ethics and Standards since she is not a CFA
charterholder.

C) Spraetz, in her capacity as a supervisor, violated Standard IV(C) by not preventing violations by
Jackson.