Q-13. An analyst has been writing research reports on a firm for many years. As part of the analyst’s continuing research efforts, the analyst allowed the firm to fly him to the firm’s headquarters 500 miles away and put him up in the guest quarters the firm had for all corporate visitors. In the current year, the firm is planning a secondary share offering that coincides with the tenth anniversary of the firm going public. When the analyst arrived at the headquarters, he found a new set of high-quality golf clubs as a gift to him. On the golf clubs was the firm’s logo, and the firm was giving the clubs to all visitors this year in honor of the anniversary and the IPO. Based upon this information, Standard I (B), Independence and Objectivity, has: A. Been broken because of the value of the golf clubs and the value of the trip to the headquarters. B. Been broken because of the value of the golf clubs. C. Not been broken because the trip is allowed and the firm is giving the clubs to all visitors. Solution: B. Modest gifts and entertainment are acceptable. Should commercial transportation be unavailable, modestly arranged travel may be accepted to participate in appropriate information gathering events. Q-14. Romar Brockman, CFA, is a sell-side analyst. Approximately half of Brockman’s compensation comes from his firm’s Investment-banking division. Brockman was asked to write a report about Anacortes Concrete (AC), an Investment-banking client. Despite concerns about the slowdown in concrete demand, Brockman issued a very positive report on AC. When issuing his report, Brockman least likely violates the CFA Institute Standard relating to: A. Loyalty to Employer. B. Loyalty, Prudence, and Care. C. Independence and Objectivity. Solution: A. The Standards require members to put client interests ahead of member and employer interests. As Brockman’s compensation is dependent upon investment banking revenues, Brockman may not be objective. When issuing the report, he is in jeopardy of violating Standards relating to Independence and Objectivity; Loyalty, Prudence, and Care; and Disclosure of Conflicts. Q-15. Kavily Poven recently left his job as a research analyst for a large investment adviser. While looking for a new position, he was hired by an investor-relations firm to write a research report on one of its clients, a small educational software company. The investor-relations firm hopes to generate investor interest in the technology company. The firm will pay Poven a flat fee plus a bonus if any new investors buy stock in the company as a result of Poven’s report. If Poven accepts this payment arrangement, he most likely violates the Code and Standards with respect to: A. Disclosure of Conflicts. B. Misconduct. C. Independence and Objectivity. Solution: C . If Poven accepts this payment arrangement, he will be in violation of Standard I(B) because the compensation arrangement can reasonably be expected to compromise his independence and objectivity. The agent option granted by Poven may compromise his objectivity.
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