Page 18 - FINAL CFA II SLIDES JUNE 2019 DAY 1

MODULE 2.2: READINGS 1 AND 2: CFA INSTITUTE CODE OF ETHICS AND STANDARDS OF
STANDARDS I(C) AND I(D) PROFESSIONAL CONDUCT GUIDANCE FOR STANDARDS I–VII

I. PROFESSIONALISM

C. Misrepresentation

Recommended Procedures for Compliance

• Provide employees who deal with clients or prospects a written list of the firm’s available services and a description of the firm’s qualifications.
• Employee qualifications should be accurately presented.
• To avoid plagiarism, maintain records of all materials used to generate reports or other firm products and properly cite sources (quotes and
summaries) in work products. Information from recognized financial and statistical reporting services need not be cited.
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• Encourage your firms to establish procedures for verifying 3 party marketing claims before passing unto clients.
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Application of Standard I(C) Misrepresentation
Vignette 1: 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.

Analysis:
• McGuire has violated Standard I(C) because the Internet site and emails are 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.

Action/s? Review examples 2 - 9