Tomonaga Olawando is a research analyst currently doing research on Cleebok Shoes, a footwear manufacturer infamous for its exorbitantly priced shoes.
Tomonoga has been interviewing Pollyanna Givens, a senior vice president with the public relations division. Pollyanna has told him that the investment community has underestimated the payoffs from Cleebok's plan to outsource shoe production to Mexico, thus cutting productions costs significantly. She told him her estimate puts thecost savings close to $600 million, as against the figure of $370 million quoted by a few active analysts. In his report, Tomonaga states that the extra savings of $230 million a year will raise the stock price by 26% over the next year and hence, represents a great buy. Tomonaga has
I. not violated any code of ethics.
II. has violated Standard IV (A.1) - Reasonable Basis & Representations.
III. has violated Standard IV (A.2) - Research Reports.
IV. has violated Standard IV (B.2) - Portfolio Investment Recommendations and Actions.
Click on the arrows to vote for the correct answer
A. B. C. D.B
By taking an opinion of a person and representing as a fact in his research report, Tomonaga has violated Standards IV (A.1) and IV (A.2).
Based on the given information, Tomonaga Olawando, the research analyst, has violated Standard IV (A.1) - Reasonable Basis & Representations and Standard IV (A.2) - Research Reports of the CFA® Institute's Code of Ethics and Standards of Professional Conduct. The correct answer is B. II and III only.
Standard IV (A.1) - Reasonable Basis & Representations requires that CFA® Institute members and candidates have a reasonable and adequate basis supported by appropriate research for making investment recommendations or taking investment actions. In this case, Tomonaga's claim of a 26% increase in stock price is based solely on the information provided by Pollyanna Givens, a senior vice president of public relations. Tomonaga has not conducted any independent research or verified the accuracy of the information. Therefore, he has violated this standard.
Standard IV (A.2) - Research Reports requires that CFA® Institute members and candidates provide a clear, fair, and thorough representation of their analysis in their research reports. In this case, Tomonaga's report states that the extra savings of $230 million a year will raise the stock price by 26% over the next year. However, this claim lacks a clear and thorough analysis that supports the stated percentage increase. Tomonaga has not provided any supporting evidence or analysis to back up his claim, violating this standard.
Tomonaga has not violated Standard IV (B.2) - Portfolio Investment Recommendations and Actions, as there is no information suggesting that he made any specific portfolio investment recommendations or took any investment actions based on his report.
Tomonaga has also not violated any other code of ethics or standards mentioned in the question.
Therefore, the correct answer is B. II and III only.