Question #6 - Reading 42.5 Standards of Professional Conduct Guidance for Standards V

Reading: Reading 42.5 Standards of Professional Conduct Guidance for Standards V

PDF File: Reading 42.5 Standards of Professional Conduct Guidance for Standards V.pdf

Page: 4

Status: Correct

Correct Answer: A

Shared Context

- According to CFA Institute Standards of Professional Conduct, which of the following of Fleming's actions is most likely a violation of Standard I(C)—Misrepresentation? Fleming: A) tells the CIO of Crocket Foundation that shares of DCH’s IPO outperformed the S&P 500 by at least 15% in each of the last three years since the offering. B) executes the trades on DCH Corp. per Waverly’s instructions without first referring to Waverly’s IPS. C) tells the CIO of the Crockett Foundation that DCH’s secondary offering will earn at least the lowest return earned on its IPO shares over the last three years.

Question

According to CFA Institute Standards of Professional Conduct, did Fleming's conversation with the CIO of the Crockett Foundation or his decision to sell GlobalBank's position in DCH stock most likely violate Standard II(B)—Market Manipulation? Conversation with CIO Sell decision

Answer Choices:

A. Yes No

B. Yes Yes

C. No Yes

Explanation

Standard II(B)—Market Manipulation prohibits practices that distort prices or artificially inflate trading volume with the intent to mislead market participants, including the dissemination of false or misleading information. Although Fleming's conversation included two prohibited comments (a guarantee of performance and an inappropriate disclosure of client information), he did not give the CIO of Crockett information in an attempt to manipulate prices or trading volume and thus did not violate Standard II(B). His decision to sell GlobalBank's shares of DCH, however, was intended to manipulate the price of DCH stock in order to intimidate smaller investors into withdrawing their purchase order in the secondary offering, thereby freeing up shares for his client, the Crockett Foundation. This action is clearly a violation of Standard II(B).

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