Ethics question- Please chip in your thoughts

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ravinsu

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CFA Mock I Ethics Question 11

[Not copying the whole question to avoid violating I(A)]

Peek discloses all of his personal trading accounts, but does not disclose his holdings in the investment club. Peek�s actions are least likely to be a violation of which of the CFA Institute Standards of Professional Conduct?
A. Misrepresentation.
B. Transaction priority.
C. Conflicts of interest.

Answer (B)
B is correct as there is no indication that the investment club is trading ahead of clients.

I thought its (A) , but hey, my thinking hardly matters.

Edit: Why is it a misrepresentation? personal holdings disclosure is not mentioned anywhere in standard I(C), but it is mentioned in 32 pixel font under Reporting Requirements for Standard VI(B) - priority of transactions.

Granted, there is no indication that the investment club is trading ahead of client. But duh! there is a good chance it might especially since its not disclosed.



Edited 2 time(s). Last edit at Thursday, December 2, 2010 at 01:20PM by ravinsu.
 
Pg 29 paragraph 2 under Standard I (C),
" A misrepresentation is any untrue statement or omission of a fact or any statement that is otherwise false or misleading."

He clearly knowingly omitted the holdings in the investment club. If both sides were clairvoyant the only thing he'd be guilty of is not disclosing his investment club holdings.
 
Thanks 1logic.

That is a very general definition though. Using this statement, I would say that pumping penny stock prices on the internet is a I (C) violation, but it would actually be violation regarding the integrity of capital markets under market manipulation.
(or is it both?, only CFAI knows)

But I do agree, if an omission is a misrepresentation, then this one is. I was a little bit confused because VI(B) requires disclosure of all holdings.
 
The way i think of this question is that there was no trading ahead of clients, so the answer has to be priority of transactions.

Although he didnt lie, he failed to tell the truth purposefully, does violating misrepresentation.

He has to disclose his ownership in this stock if he is a beneficial owner or if his wife owns it (what about kids? would he have to disclose it if his kid own it?). So the answer has to be priority of transaction
 
Spanishesk Wrote:
-------------------------------------------------------
> The way i think of this question is that there was
> no trading ahead of clients, so the answer has to
> be priority of transactions.
>

That's it - this should help you answer the question
 
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