Question #27 - 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: 16

Status: Correct

Correct Answer: B

Shared Context

- In order to remain an active member of CFA Institute, Jones must annually: A) pay applicable membership dues and complete forty hours of continuing education. B) submit her completed Professional Conduct Statement, pay applicable membership dues, and complete forty hours of continuing education. C) submit her completed Professional Conduct Statement and pay applicable membership dues.

Question

Which of the following statements regarding the research report on Sunrise Technologies after the company went public is CORRECT?

Answer Choices:

A. Jones has violated the misrepresentation Standard with her aggressive growth prediction for Sunrise Technologies; Karloff has violated the plagiarism Standard by disseminating information he received in confidence

B. Jones is in compliance with the objectivity Standard because she made her recommendation based facts, not conjecture; Karloff has violated the Standard regarding the use of material nonpublic information

C. Jones has violated the Standard on research reports because she failed to distinguish between fact and opinion; Karloff is in compliance with the supervisory- responsibilities Standard because he is keeping up with Jones’ actions and ensuring her report is accurate

Explanation

Jones' second research report made reference to hard facts, and her analysis and revision of the cash flow projections seems thorough and reasonable. This time, Karloff did not press her to express a certain opinion, and she found the information about the company compelling. She projected higher growth in cash flow for Sunrise, but nowhere is it said that she guaranteed a hard target. Jones is in compliance with the misrepresentation, objectivity, reasonable-basis, and research-report Standards. Karloff violated the insider- trading Standard because the information was given to him in confidence. He may also have violated his fiduciary duty to Sunrise, which probably kept the information private for a reason. (Module 42.8, LOS 42: V(A))

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