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Sue Parsons, CFA, works full-time as an investment advisor for the Malloy Group, an asset
management firm. Parsons wants to engage in independent practice in which she would
advise individual clients on their portfolios. She would conduct these investment activities
only on weekends. She is currently only in the preparation stage and has not started
independent practice yet. The Standard concerning loyalty:
A) does not require Parsons to notify Malloy of preparing an independent practice.
B)
requires Parsons to obtain consent from both Malloy and the persons from whom
she will engage in independent practice.
C)
requires Parsons to notify Malloy that she is preparing to engage in independent
practice.
Mary Montpier, CFA, is an equity analyst located in the Malaysia office of World Class
Advisers. The firm provides investment advice and financial-planning services globally to
institutional and retail clients. The Malaysia office was opened last year to provide additional
international investment opportunities for U.S. clients. Montpier covers small-cap stocks in
the region. Montpier's supervisor, Rick Reynolds, CFA, works in New York.
Jim Taylor is an analyst in New York who works at World Class Broker-Dealer, a sister
company of World Class Advisers. Taylor covers healthcare and biotech stocks for the firm.
Taylor recently completed Level I of the CFA examination and is registered for the Level II
examination next year. Taylor works for John James, CFA.
Through her interaction with other analysts in Malaysia, Montpier learns that the use of
material, nonpublic information is common practice in analyst research reports and
recommendations, which is not prohibited by law in Malaysia. Montpier has acquired
material, nonpublic information on the research pipeline of Circuit Secrets, a Malaysian
semiconductor company. The nonpublic information makes the company seem like a fine
investment. After extensive research through traditional means, Circuit Secrets appeared to
be fully valued relative to its growth potential until Montpier found the nonpublic
information.
Montpier is proud of her CFA charter. In fact, she often boasts that she is one of the elite
members of the CFA Institute that passed all three exams consecutively without failing.
Taylor is also proud of the CFA program. He told his friends and family the CFA designation
is globally recognized in the field of investment management and research. Furthermore,
Taylor states that he believes the program will enhance his portfolio management skills and
further his career development.
In her free time, Montpier has begun consultation for members of a local investment club.
The club is in the process of developing an appropriate compensation package for her
services, which to date have included financial-planning activities and investment research.
Montpier informs the investment club that she has a full-time job at World Class Advisers,
which offers similar services. The investment club gave Montpier written permission to
consult for them despite her full-time work.
To gain insight on biotech stocks, Taylor registers for an upcoming asthma study conducted
by Breakthrough Corp., through which he and others will be the subject of testing for the
efficacy of several new drugs. On his application, longtime asthma sufferer Taylor indicates
that he has the appropriate medical condition for the study and signs a confidentiality
agreement. During the study, a researcher shows Taylor a spreadsheet detailing the
progress of Breakthrough's research pipeline. Two of the new drugs on which Breakthrough
is awaiting regulatory approval have serious negative side effects in patient testing. This
information confirms suspicions Taylor had developed after extensive research and
conversations with company executives regarding nonmaterial, nonpublic information,
though he was not certain about the names of the drugs until he saw the spreadsheet. At
the conclusion of the study, Taylor releases a report detailing the drugs' side effects and
recommends that clients "sell" Breakthrough Corp.
Over the next two weeks, Breakthrough releases information that the drugs in question
have been held up by a regulatory agency pending additional investigation. The stock
plunges more than 30% on the news.