CFA Level 1 Ethics Violations - Grazelle Garbo Case Study

Ethics Violations in Grazelle Garbo's Actions

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Question

Grazelle Garbo has decided to change the recommendation on one of the firms she is following from hold to buy. She has communicated her research report to her senior manager, who is reviewing it. If the recommendation passes muster, it will be released three days from now. In the meanwhile, Grazelle has decided to follow her research and purchase the stock for several of her clients' accounts for which the stock is an appropriate investment and for which she has discretionary investment powers. In the course of the luncheon meeting that same day, she mentioned that she had bought the stocks for some client accounts to one of her prospective clients and described her research which caused her to change her recommendation. Grazelle has

I. violated Standard IV (B.3) - Fair Dealing - by revealing the change in recommendation.

II. violated Standard IV (B.5) - Preservation of Confidentiality - by revealing the information about stock purchase.

III. did not violate the Ethics code.

Answers

Explanations

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A. B. C. D.

D

Since Grazelle has not revealed any information about the specific client accounts or any confidential information, she is not in violation of Standard IV (B.5) -

Preservation of Confidentiality. However, by revealing the information on the change in recommendation prematurely to one of her prospective clients, she has violated Standard IV (B.3) - Fair Dealing. The information is potentially quite valuable and giving to one client before another in a partisan fashion is a violation of the AIMR code of Ethics.

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