Question #7
Reading: Reading 43 Application of the Code and Standards Level II
PDF File: Reading 43 Application of the Code and Standards Level II.pdf
Page: 5
Status: Correct
Correct Answer: A
Question
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 offerings (IPO) diminished, just before Acme Medical's public offering, James asked Jackson to commit to a large purchase of the offering for her portfolios. Jackson had previously determined that Acme Medical was a questionable investment but agreed to reconsider at James' request. Her reevaluation confirmed the stock to be overpriced, but she nevertheless decided to purchase Acme Medical for her clients' portfolios. Did Jackson violate Standard III(
Answer Choices:
A. No
B. Yes, because she did not consider the appropriateness and suitability of investment recommendations or actions for each portfolio or client
C. Yes, because she did not deal fairly with all clients
Explanation
Jackson violated Standard III(C) Suitability because she did not consider her clients'
financial situation, investment experience, and investment objectives.