Page 15 - FINAL CFA II SLIDES JUNE 2019 DAY 1

READINGS 1 AND 2: CFA INSTITUTE CODE OF ETHICS AND STANDARDS OF
MODULE 2.1: STANDARDS I(A) AND I(B) PROFESSIONAL CONDUCT GUIDANCE FOR STANDARDS I–VII

LOS 2.a: Demonstrate a thorough knowledge of the CFA Institute Code of Ethics and Standards of Professional Conduct by applying the Code
and Standards to specific situations.
LOS 2.b: Recommend practices and procedures designed to prevent violations of the Code of Ethics and Standards of Professional Conduct.

I. PROFESSIONALISM

A. Knowledge of the Law (and regulations, including the Code of Ethics and Standards of Professional Conduct).

Application of Standard I(A) Knowledge of the Law 3

Vignette 1: 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, who states that it would be difficult for the regulator to prove that Allen has been involved in any wrongdoing.
Analysis: 1
Although it is recommended that you seek the advice of legal counsel, the reliance on such advice does not absolve you from the requirement to comply
with the law or regulation.

Action/s:
Allen should report situation to his supervisor, seek an independent legal opinion, and determine whether the regulator should be notified of the error.
Vignette 2: Kamisha Washington’s firm advertises its past performance record by showing the 10-year return of a composite of its client accounts.
However, Washington discovers that the composite omits the performance of accounts that have left the firm during the 10-year period and that 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.

Analysis:
Misrepresenting performance is a violation. Although she did not calculate the performance herself, Washington would be assisting in violating this standard
if she were to use the inflated performance number when soliciting clients.

Action/s:
• Kamisha must dissociate from the activity.
• Report misleading number to the person responsible for calculating performance, her supervisor, or the compliance unit.
• If her firm is unwilling to recalculate, Kamisha must refrain from using the misleading promotional material and notify firm of her reasons.
• If firm insists, she should consider whether her obligation to dissociate from the activity would require her to seek other employment.