Neeson Pacino is the senior vice president in the corporate finance arm of Hindenberry Brokerage. Neeson was recently approached by Curare Creators, a pesticide manufacturer. Curare would like to offer new equity to raise capital and has provided Neeson with its current balance sheet and details about the pending projects. Neeson carefully goes over the numbers with a couple of project managersat Curare and also two of his analysts at Hindenberry. He concludes from these discussions that the numbers presented by Curare are overly optimistic. The revised numbers would seriously lower the offering price. Not relishing this prospect, Neeson decides to go ahead with the numbers as drawn up by Curare and directs the department to prepare the IPO with the offering price. Neeson has
Answer(s): A
By knowingly misrepresenting the situation, Neeson has allowed the possibility that investors would end up paying more than the fair price in the seasoned equity offering. He has thus violated Standard IV (A.1) - Reasonable Basis & Representations.
Information is ________ if its disclosure would be likely to have an impact on the price of a security or if reasonable investors would want to know the information before making an investment decision.
Answer(s): E
According to Standard V (A), information is "material" if it would significantly alter the total mix of information currently available regarding a security.
Amartya is currently managing the investment fund for a charitable institution and has his fiduciary duties bound by the UMIFA (Uniform Management of Institutional Funds) rules. His colleague, Bhagwati, is a trustee of a personal trust fund set up by the late R. D. Tata, a famous industrialist. Which of the following is/are true about this situation?
In the US, the investment actions of personal trust fiduciaries is governed by the "Prudent Man Rule," which requires an exercise of care and judgment which people of "prudence, character and intelligence" would use in the management of their personal investment affairs. On the other hand, trustees of charitable funds, when governed by UMIFA, are held to the standard of ordinary business care. This standard is comparable to that which applies to someone of the rank of a director in a business corporation and is not as strict as the Prudent Man Rule. Therefore, Amartya, as a UMIFA fiduciary, is held to a lower standard than Bhagwati. Standard IV (B.1) - Fiduciary Duties - and the Topical Study "Fiduciary Duty."
Regarding beneficiaries and remaindermen, current life-income beneficiaries prefer to receive ________; remaindermen would rather have ________.
Answer(s): C
None of these choices is the correct answer. Current life-income beneficiaries prefer to receive high rate of current income, while remaindermen would rather have growth and stability of principal.
Steffanie Graff is an investment advisor with Wimbledon Advisors, Inc. She recently obtained her CFA charter, reflected on her new business cards. In a meeting, she told a couple of her new clients something to the effectof the following: "I have a long record of successful investment advises, which have led my client accounts to have an annual return of 32% over the past 3 years. I am sure you will be quite satisfied with my performance." In reality, a large part of this return was caused by a very lucky coincidence wherein one of the penny stocks in a client account registered a 200% increase over a short time due to a takeover. Without this, her client accounts would have averaged less than S&P500 on a risk-adjusted basis. Has Stephanie violated the code of ethics?
Answer(s): B
Standard IV (B.6) - Prohibition against Misrepresentation.
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