Question #60 - Reading 42.3 Standards of Professional Conduct Guidance for Standards III

Reading: Reading 42.3 Standards of Professional Conduct Guidance for Standards III

PDF File: Reading 42.3 Standards of Professional Conduct Guidance for Standards III.pdf

Page: 25

Status: Correct

Correct Answer: B

Shared Context

- After changing her recommendation on Aggregate, Sanders: A) violated Standard VI(B): Priority of Transactions by trading Aggregate from her own account. B) violated Standard II(A): Material Nonpublic Information by taking investment action based on information not accessible to the public. C) did not violate Standard II(A): Material Nonpublic Information because the information was disclosed to a select group of analysts.

Question

Which statement about violations of the Code and Standards is CORRECT?

Answer Choices:

A. Henderson violated the reasonable-basis standard, but Sanders did not violate the Standard regarding use of material nonpublic information

B. Aggregate’s CFO violated the market manipulation Standard, but Black did not violate the fiduciary-duties Standard

Explanation

By participating in Aggregate's inflation of earnings and then selective disclosure, the CFO did violate the market manipulation Standard. While Black violated a number of Standards, his brother's fiduciary duty cannot be imposed on him. Black did not violate the fiduciary-duties Standard. While Cho did not violate the insider-trading standard because he came to his conclusions through the mosaic method, Watkins certainly did because he misappropriated the information. Martinez violated the Standard on material nonpublic information. Henderson did not violate the reasonable-basis Standard. Sanders did violate the insider-trading Standard.

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