reporting illegal activity

[bunky]

I do not understand the answer to this:
Allen Parsons, a CFA candidate, suspects a colleague at his firm of engaging in an illegal activity. Which of the following statements about procedures for compliance involving Standard I(A), Knowledge of the law is FALSE? Parsons:
A) should urge his firm to attempt to persuade the perpetrator to cease such conduct.
B) is required to report this legal violation to the appropriate governmental or regulatory organizations.
C) should consult counsel to determine whether the conduct is, in fact, illegal.
The correct answer was B) is required to report this legal violation to the appropriate governmental or regulatory organizations.
Shouldn’t he determine whether the activity is indeed illegal before reporting to authorities?
Standard I(A), Knowledge of the law, does not require that Parsons report legal violations to the appropriate governmental or regulatory organizations, but such disclosures may be appropriate under certain circumstances.

 

[bunky]

A related question.
Deloris Johnson, CFA, suspected that her intern, who was working without pay at her brokerage firm, had violated a federal securities regulation. Johnson discussed the matter with her company’s legal counsel who said that the intern’s conduct was illegal. According to the CFA Institute Code and Standards of Professional Conduct, Johnson can dissociate herself from this illegal activity by:
A) reporting the activity to the appropriate authorities.
B) transferring supervision of the intern to another person.
C) telling her intern to stop such conduct.
The correct answer was A) reporting the activity to the appropriate authorities. Johnson can dissociate herself from the illegal activity by reporting the activity to the appropriate authorities. However, the Code and Standards do not require that she report legal violations to the appropriate governmental or regulatory organizations, but such disclose is prudent in this circumstance. By transferring the intern to another supervisor this may not solve the problem of the illegal activity occurring and the company would still be held liable for it.
I don’t agree with this answer. It seems like in real life, the supervisor should just tell the intern to stop since she is in a position of authority to correct the problem immediately. If the intern didn’t stop, then the supervisor could tell authorities. Can someone explain the flaw in my logic?

 

[AntonioY]

1st Q
Yes, he should. You misread, question says which one is FALSE.
2nd Q,
Your logic seems fine to me but the problem is that the intern works for her, hence she has to dissociate herself somehow from the intern’s activities. Just but staying to stop, and even believing the intern will abide, an outsider might wonder if she knew and approved the past illegal activities. That’s why just saying stop doesn’t help her to dissociate (which is the actual question), nor transferring supervision does, but reporting the affair does.
Tricky thing in Ethics is question interpretation..

 

[bunky]

Tricky! Thanks for the clarification. I need to read these more carefully.

 

[whystudy]

bunky Wrote:
——————————————————-
> I do not understand the answer to this:
>
> Allen Parsons, a CFA candidate, suspects a
> colleague at his firm of engaging in an illegal
> activity. Which of the following statements about
> procedures for compliance involving Standard I(A),
> Knowledge of the law is FALSE? Parsons:
>
> A) should urge his firm to attempt to persuade
> the perpetrator to cease such conduct.
> B) is required to report this legal violation to
> the appropriate governmental or regulatory
> organizations.
> C) should consult counsel to determine whether
> the conduct is, in fact, illegal.
>
> The correct answer was B) is required to report
> this legal violation to the appropriate
> governmental or regulatory organizations.
>
> Shouldn’t he determine whether the activity is
> indeed illegal before reporting to authorities?
>
> Standard I(A), Knowledge of the law, does not
> require that Parsons report legal violations to
> the appropriate governmental or regulatory
> organizations, but such disclosures may be
> appropriate under certain circumstances.
Still can’t believe they switched to only 3 MC choices now. Ethics just became so much easier.
The distractors used in those 2 questions isn’t that good, you might want to try the actual CFA mock exams ethics questions, I am assure you they aren’t as easy as the ones presented here. Those are pratically gimmes if it shows up on the exam which I highly doubt it will those.

 

[whystudy]

Still can’t believe they switched to only 3 MC choices now. Ethics just became so much easier.
The distractors used in those 2 questions isn’t that good, you might want to try the actual CFA mock exams ethics questions, I am assure you they aren’t as easy as the ones presented here. Those are pratically gimmes if it shows up on the exam which I highly doubt it will those.
Also, for your 2nd questions, please note that if she does not report it to the authorities, she would be considered involved in such illegal activities. Very much like not reporting a murderer, you become an accomplice; only by telling him to no murder again is outrageous.