CFA Level 1: Ethical Conduct - Sunil Vaskar and Material Misrepresentation by Raindrop Waterworks

Sunil Vaskar and Material Misrepresentation by Raindrop Waterworks

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Question

Sunil Vaskar is an employee of Glamorgan, a reputable investment banking firm. Glamorgan is a major underwriter for an equity issued by a private firm, Raindrop

Waterworks. Sunil has accidentally discovered that the preliminary prospectus issued by Raindrop contains material overstatements about the scope of its businesses and future earning potential. Sunil:

Answers

A. must report his findings to his supervisor and consult his legal department.

B. must sever all connections with Glamorgan and dissociate himself from its activities.

C. need not do anything because the prospectus has been distributed and is, in any case, preliminary.

D. must report the case to the SEC since there has been a violation of laws governing equity issues.

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Explanations

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A. B. C. D.

Standard I requires that suspected violation of laws be reported to appropriate supervisory people in the firm. It is also advisable to consult the legal department and dissociate oneself from the illegal activity. Sunil has to dissociate himself from the underwriting process involving Raindrop but he does not have to sever connections with his employer, Glamorgan.

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