Test Prep CFA® Level 2 Exam Practice Questions (P. 2)

Maria Harris is a CFA® Level 3 candidate and portfolio manager for Islandwide Hedge Fund. Harris is commonly involved in complex trading strategies on behalf of Islandwide and maintains a significant relationship with Quadrangle Brokers, which provides portfolio analysis tools to Harris. Recent market volatility has led
Islandwide to incur record-high trading volume and commissions with Quadrangle for the quarter. In appreciation of Islandwide's business, Quadrangle offers
Harris an all-expenses-paid week of golf at Pebble Beach for her and her husband. Harris discloses the offer to her supervisor and compliance officer and, based on their approval, accepts the trip.
Harris has lunch that day with C. K. Swamy, CFA, her old college roommate and future sister-in-law. While Harris is sitting in the restaurant waiting for Swamy to arrive, Harris overhears a conversation between the president and chief financial officer (CFO) of Progressive Industries. The president informs the CFO that
Progressive's board of directors has just approved dropping the company's cash dividend, despite its record of paying dividends for the past 46 quarters. The company plans to announce this information in about a week. Harris owns Progressive's common stock and immediately calls her broker to sell her shares in anticipation of a price decline.
Swamy recently joined Dillon Associates, an investment advisory firm. Swamy plans to continue serving on the board of directors of Landmark Enterprises, a private company owned by her brother-in-law, for which she receives $2,000 annually. Swamy also serves as an unpaid advisor to the local symphony on investing their large endowment and receives four season tickets to the symphony performances.
After lunch, Alice Adams, a client, offers Harris a 1 -week cruise as a reward for the great performance of her account over the previous quarter. Bert Baker, also a client, has offered Harris two airplane tickets to Hawaii if his account beats its benchmark by more than 2% over the following year.
Juliann Clark, a CFA candidate, is an analyst at Dillon Associates and a colleague of Swamy's. Clark participates in a conference call for several analysts in which the chief executive officer at Dex says his company's board of directors has just accepted a tender offer from Monolith Chemicals to buy Dex at a 40% premium over the market price. Clark contacts a friend and relates the information about Dex and Monolith. The friend promptly contacts her broker and buys 2,000 shares of Dex's stock.
Ed Michaels, CFA, is director of trading at Quadrangle Brokers. Michaels has recently implemented a buy program for a client. This buy program has driven up the price of a small-cap stock, in which Islandwide owns shares, by approximately 5% because the orders were large in relation to the average daily trading volume of the stock. Michaels' firm is about to bring shares of an OTC firm to market in an
IPO. Michaels has publicly announced that, as a market maker in the shares, his trading desk will create additional liquidity in the stock over its first 90 days of trading by committing to minimum bids and offers of 5,000 shares and to a maximum spread of one-eighth.
Carl Park, CFA, is a retail broker with Quadrangle and has been allocated 5,000 shares of an oversubscribed IPO. One of his clients has been complaining about the execution price of a trade Park made for her last month, but Park knows from researching it that the trade received the best possible execution. In order to calm the client down. Park increases her allocation of shares in the IPO above what it would be if he allocated them to all suitable client accounts based on account size. He allocates a pro rata portion of the remaining shares to a trust account held at his firm for which his brother-in-law is the primary beneficiary.
According to Standard IV Duties to Employers, which of the following is most likely required of Swamy? Swamy must:

Maria Harris is a CFA® Level 3 candidate and portfolio manager for Islandwide Hedge Fund. Harris is commonly involved in complex trading strategies on behalf of Islandwide and maintains a significant relationship with Quadrangle Brokers, which provides portfolio analysis tools to Harris. Recent market volatility has led
Islandwide to incur record-high trading volume and commissions with Quadrangle for the quarter. In appreciation of Islandwide's business, Quadrangle offers
Harris an all-expenses-paid week of golf at Pebble Beach for her and her husband. Harris discloses the offer to her supervisor and compliance officer and, based on their approval, accepts the trip.
Harris has lunch that day with C. K. Swamy, CFA, her old college roommate and future sister-in-law. While Harris is sitting in the restaurant waiting for Swamy to arrive, Harris overhears a conversation between the president and chief financial officer (CFO) of Progressive Industries. The president informs the CFO that
Progressive's board of directors has just approved dropping the company's cash dividend, despite its record of paying dividends for the past 46 quarters. The company plans to announce this information in about a week. Harris owns Progressive's common stock and immediately calls her broker to sell her shares in anticipation of a price decline.
Swamy recently joined Dillon Associates, an investment advisory firm. Swamy plans to continue serving on the board of directors of Landmark Enterprises, a private company owned by her brother-in-law, for which she receives $2,000 annually. Swamy also serves as an unpaid advisor to the local symphony on investing their large endowment and receives four season tickets to the symphony performances.
After lunch, Alice Adams, a client, offers Harris a 1 -week cruise as a reward for the great performance of her account over the previous quarter. Bert Baker, also a client, has offered Harris two airplane tickets to Hawaii if his account beats its benchmark by more than 2% over the following year.
Juliann Clark, a CFA candidate, is an analyst at Dillon Associates and a colleague of Swamy's. Clark participates in a conference call for several analysts in which the chief executive officer at Dex says his company's board of directors has just accepted a tender offer from Monolith Chemicals to buy Dex at a 40% premium over the market price. Clark contacts a friend and relates the information about Dex and Monolith. The friend promptly contacts her broker and buys 2,000 shares of Dex's stock.
Ed Michaels, CFA, is director of trading at Quadrangle Brokers. Michaels has recently implemented a buy program for a client. This buy program has driven up the price of a small-cap stock, in which Islandwide owns shares, by approximately 5% because the orders were large in relation to the average daily trading volume of the stock. Michaels' firm is about to bring shares of an OTC firm to market in an
IPO. Michaels has publicly announced that, as a market maker in the shares, his trading desk will create additional liquidity in the stock over its first 90 days of trading by committing to minimum bids and offers of 5,000 shares and to a maximum spread of one-eighth.
Carl Park, CFA, is a retail broker with Quadrangle and has been allocated 5,000 shares of an oversubscribed IPO. One of his clients has been complaining about the execution price of a trade Park made for her last month, but Park knows from researching it that the trade received the best possible execution. In order to calm the client down. Park increases her allocation of shares in the IPO above what it would be if he allocated them to all suitable client accounts based on account size. He allocates a pro rata portion of the remaining shares to a trust account held at his firm for which his brother-in-law is the primary beneficiary.
According to Standard IV Duties to Employers, which of the following is most likely required of Swamy? Swamy must:
Which action by Park violated Standard III(B) Duties to Clients: Fair Dealing?

Connor Burton, CFA, is the managing partner for United Partners, a small investment advisory firm that employs three investment professionals and currently has approximately $250 million of assets under management. The client base of United Partners is varied, and accounts range in size from small retirement accounts to a $30 million private school endowment. In addition to Burton's administrative responsibilities as the managing partner at United, he also serves as an investment advisor to several clients. Because United Partners is a small firm, the company does not employ any research analysts but instead obtains its investment research products and services from two national brokerage firms, which in turn execute all client trades for United Partners. The arrangement with the two brokers has enabled United to assure its clients that the firm will always seek the best execution for them by having both brokers competitively bid for United's business.
A prospective client, Harold Crossley, has approached Burton about shifting some of his personal assets under management from MoneyCorp to United Partners.
Burton provides Crossley with a packet of marketing information that Burton developed himself. The packet contains five years of historical performance data for the private school endowment, Unitcd's largest client. Burton states that the composite's management style and performance results are representative of the management style and returns that United can be expected to achieve for Crossley. Also included in the information packet are brief bios on each of United's three investment professionals. Crossley notices that all three of United's investment professionals are described as "CFA charterholders," but he is not familiar with the designation. In response to Crossley's inquiry. Burton explains the significance of the program by stating that the designation, which is only awarded after passing three rigorous exams and obtaining the requisite years of work experience, represents a commitment to the highest standards of ethical and professional conduct.
As a condition of moving his account to United Partners, Crossley insists that all of his trades be executed through his brother-in-law, a broker for Security Bank.
Security Bank is a large, New York-based broker/dealer but is not one of the two brokerage firms with which United currently does business. Burton contacts
Crossley's brother-in-law and determines that Security Bank's trade execution is competitive, but Crossley's account alone would not generate enough volume to warrant any soft dollar arrangement for research materials.
However, Crossley'-s brother-in-law does offer for Security Bank to pay a referral fee to Burton for directing any of United's clients to Security Bank's retail banking division. To bring Crossley on as a client, Burton agrees to the arrangement. Going forward. Burton will use Security Bank to execute all of Crossley's trades but will use research materials provided by the other two brokers to assist in the management of Crossley's account.
Several months later, Burton is invited to a road show for an initial public offering (IPO) for Solution Ware, a software company. Security Bank is serving as lead underwriter on SolutionWare's IPO. Burton attends the meeting, which is led by two investment bankers and one software industry research analyst from Security
Bank who covers SolutionWare. Burton notes that the bankers from Security Bank have included detailed financial statements for SolutionWare in the offering prospectus and also disclosed that Security Bank provides a warehouse line of credit to SolutionWare. After the meeting, Burton calls Crossley to recommend the purchase of SolutionWare equity. Crossley heeds Burton's advice and tells him to purchase 5,000 shares. Before placing Crossley's order, Burton reads the
SolutionWare marketing materials and performs a detailed analysis of expected future earnings and other key factors for the investment decision. Burton determines that the offering would be a suitable investment for his own retirement portfolio in addition to Crossley's portfolio. United Partners, being a small firm, has no formal written policy regarding trade allocation, employee participation in equity offerings, or established blackout periods for employee trading. Burton adds his order to Crossley's order and places a purchase order for the combined number of shares with Security Bank. Burton is later notified that the offering was oversubscribed, and United Partners was only able to obtain roughly 75% of the desired number of shares. To be fair. Burton allocates the shares on a pro rata basis between Crossley's account and his own retirement account. When Burton notifies Crossley of the situation, Crossley is nonetheless pleased to have a position, though smaller than requested, in such a "hot" offering.
Did the marketing materials presented to Crossley by Burton violate Standard III(D) Performance Presentation or Standard VI 1(B) Reference to CFA Institute, the
CFA Designation, and the CFA Program?

Connor Burton, CFA, is the managing partner for United Partners, a small investment advisory firm that employs three investment professionals and currently has approximately $250 million of assets under management. The client base of United Partners is varied, and accounts range in size from small retirement accounts to a $30 million private school endowment. In addition to Burton's administrative responsibilities as the managing partner at United, he also serves as an investment advisor to several clients. Because United Partners is a small firm, the company does not employ any research analysts but instead obtains its investment research products and services from two national brokerage firms, which in turn execute all client trades for United Partners. The arrangement with the two brokers has enabled United to assure its clients that the firm will always seek the best execution for them by having both brokers competitively bid for United's business.
A prospective client, Harold Crossley, has approached Burton about shifting some of his personal assets under management from MoneyCorp to United Partners.
Burton provides Crossley with a packet of marketing information that Burton developed himself. The packet contains five years of historical performance data for the private school endowment, Unitcd's largest client. Burton states that the composite's management style and performance results are representative of the management style and returns that United can be expected to achieve for Crossley. Also included in the information packet are brief bios on each of United's three investment professionals. Crossley notices that all three of United's investment professionals are described as "CFA charterholders," but he is not familiar with the designation. In response to Crossley's inquiry. Burton explains the significance of the program by stating that the designation, which is only awarded after passing three rigorous exams and obtaining the requisite years of work experience, represents a commitment to the highest standards of ethical and professional conduct.
As a condition of moving his account to United Partners, Crossley insists that all of his trades be executed through his brother-in-law, a broker for Security Bank.
Security Bank is a large, New York-based broker/dealer but is not one of the two brokerage firms with which United currently does business. Burton contacts
Crossley's brother-in-law and determines that Security Bank's trade execution is competitive, but Crossley's account alone would not generate enough volume to warrant any soft dollar arrangement for research materials.
However, Crossley'-s brother-in-law does offer for Security Bank to pay a referral fee to Burton for directing any of United's clients to Security Bank's retail banking division. To bring Crossley on as a client, Burton agrees to the arrangement. Going forward. Burton will use Security Bank to execute all of Crossley's trades but will use research materials provided by the other two brokers to assist in the management of Crossley's account.
Several months later, Burton is invited to a road show for an initial public offering (IPO) for Solution Ware, a software company. Security Bank is serving as lead underwriter on SolutionWare's IPO. Burton attends the meeting, which is led by two investment bankers and one software industry research analyst from Security
Bank who covers SolutionWare. Burton notes that the bankers from Security Bank have included detailed financial statements for SolutionWare in the offering prospectus and also disclosed that Security Bank provides a warehouse line of credit to SolutionWare. After the meeting, Burton calls Crossley to recommend the purchase of SolutionWare equity. Crossley heeds Burton's advice and tells him to purchase 5,000 shares. Before placing Crossley's order, Burton reads the
SolutionWare marketing materials and performs a detailed analysis of expected future earnings and other key factors for the investment decision. Burton determines that the offering would be a suitable investment for his own retirement portfolio in addition to Crossley's portfolio. United Partners, being a small firm, has no formal written policy regarding trade allocation, employee participation in equity offerings, or established blackout periods for employee trading. Burton adds his order to Crossley's order and places a purchase order for the combined number of shares with Security Bank. Burton is later notified that the offering was oversubscribed, and United Partners was only able to obtain roughly 75% of the desired number of shares. To be fair. Burton allocates the shares on a pro rata basis between Crossley's account and his own retirement account. When Burton notifies Crossley of the situation, Crossley is nonetheless pleased to have a position, though smaller than requested, in such a "hot" offering.
The trading arrangement between Burton and Security Bank is most likely to be a violation of the CFA Institute Soft Dollar Standards because:

Connor Burton, CFA, is the managing partner for United Partners, a small investment advisory firm that employs three investment professionals and currently has approximately $250 million of assets under management. The client base of United Partners is varied, and accounts range in size from small retirement accounts to a $30 million private school endowment. In addition to Burton's administrative responsibilities as the managing partner at United, he also serves as an investment advisor to several clients. Because United Partners is a small firm, the company does not employ any research analysts but instead obtains its investment research products and services from two national brokerage firms, which in turn execute all client trades for United Partners. The arrangement with the two brokers has enabled United to assure its clients that the firm will always seek the best execution for them by having both brokers competitively bid for United's business.
A prospective client, Harold Crossley, has approached Burton about shifting some of his personal assets under management from MoneyCorp to United Partners.
Burton provides Crossley with a packet of marketing information that Burton developed himself. The packet contains five years of historical performance data for the private school endowment, Unitcd's largest client. Burton states that the composite's management style and performance results are representative of the management style and returns that United can be expected to achieve for Crossley. Also included in the information packet are brief bios on each of United's three investment professionals. Crossley notices that all three of United's investment professionals are described as "CFA charterholders," but he is not familiar with the designation. In response to Crossley's inquiry. Burton explains the significance of the program by stating that the designation, which is only awarded after passing three rigorous exams and obtaining the requisite years of work experience, represents a commitment to the highest standards of ethical and professional conduct.
As a condition of moving his account to United Partners, Crossley insists that all of his trades be executed through his brother-in-law, a broker for Security Bank.
Security Bank is a large, New York-based broker/dealer but is not one of the two brokerage firms with which United currently does business. Burton contacts
Crossley's brother-in-law and determines that Security Bank's trade execution is competitive, but Crossley's account alone would not generate enough volume to warrant any soft dollar arrangement for research materials.
However, Crossley'-s brother-in-law does offer for Security Bank to pay a referral fee to Burton for directing any of United's clients to Security Bank's retail banking division. To bring Crossley on as a client, Burton agrees to the arrangement. Going forward. Burton will use Security Bank to execute all of Crossley's trades but will use research materials provided by the other two brokers to assist in the management of Crossley's account.
Several months later, Burton is invited to a road show for an initial public offering (IPO) for Solution Ware, a software company. Security Bank is serving as lead underwriter on SolutionWare's IPO. Burton attends the meeting, which is led by two investment bankers and one software industry research analyst from Security
Bank who covers SolutionWare. Burton notes that the bankers from Security Bank have included detailed financial statements for SolutionWare in the offering prospectus and also disclosed that Security Bank provides a warehouse line of credit to SolutionWare. After the meeting, Burton calls Crossley to recommend the purchase of SolutionWare equity. Crossley heeds Burton's advice and tells him to purchase 5,000 shares. Before placing Crossley's order, Burton reads the
SolutionWare marketing materials and performs a detailed analysis of expected future earnings and other key factors for the investment decision. Burton determines that the offering would be a suitable investment for his own retirement portfolio in addition to Crossley's portfolio. United Partners, being a small firm, has no formal written policy regarding trade allocation, employee participation in equity offerings, or established blackout periods for employee trading. Burton adds his order to Crossley's order and places a purchase order for the combined number of shares with Security Bank. Burton is later notified that the offering was oversubscribed, and United Partners was only able to obtain roughly 75% of the desired number of shares. To be fair. Burton allocates the shares on a pro rata basis between Crossley's account and his own retirement account. When Burton notifies Crossley of the situation, Crossley is nonetheless pleased to have a position, though smaller than requested, in such a "hot" offering.
According to CFA Institute Standards of Professional Conduct, which of the following statements best describes the circumstances under which Burton may enter into the referral agreement with Security Bank? Burton may enter into the agreement:

Connor Burton, CFA, is the managing partner for United Partners, a small investment advisory firm that employs three investment professionals and currently has approximately $250 million of assets under management. The client base of United Partners is varied, and accounts range in size from small retirement accounts to a $30 million private school endowment. In addition to Burton's administrative responsibilities as the managing partner at United, he also serves as an investment advisor to several clients. Because United Partners is a small firm, the company does not employ any research analysts but instead obtains its investment research products and services from two national brokerage firms, which in turn execute all client trades for United Partners. The arrangement with the two brokers has enabled United to assure its clients that the firm will always seek the best execution for them by having both brokers competitively bid for United's business.
A prospective client, Harold Crossley, has approached Burton about shifting some of his personal assets under management from MoneyCorp to United Partners.
Burton provides Crossley with a packet of marketing information that Burton developed himself. The packet contains five years of historical performance data for the private school endowment, Unitcd's largest client. Burton states that the composite's management style and performance results are representative of the management style and returns that United can be expected to achieve for Crossley. Also included in the information packet are brief bios on each of United's three investment professionals. Crossley notices that all three of United's investment professionals are described as "CFA charterholders," but he is not familiar with the designation. In response to Crossley's inquiry. Burton explains the significance of the program by stating that the designation, which is only awarded after passing three rigorous exams and obtaining the requisite years of work experience, represents a commitment to the highest standards of ethical and professional conduct.
As a condition of moving his account to United Partners, Crossley insists that all of his trades be executed through his brother-in-law, a broker for Security Bank.
Security Bank is a large, New York-based broker/dealer but is not one of the two brokerage firms with which United currently does business. Burton contacts
Crossley's brother-in-law and determines that Security Bank's trade execution is competitive, but Crossley's account alone would not generate enough volume to warrant any soft dollar arrangement for research materials.
However, Crossley'-s brother-in-law does offer for Security Bank to pay a referral fee to Burton for directing any of United's clients to Security Bank's retail banking division. To bring Crossley on as a client, Burton agrees to the arrangement. Going forward. Burton will use Security Bank to execute all of Crossley's trades but will use research materials provided by the other two brokers to assist in the management of Crossley's account.
Several months later, Burton is invited to a road show for an initial public offering (IPO) for Solution Ware, a software company. Security Bank is serving as lead underwriter on SolutionWare's IPO. Burton attends the meeting, which is led by two investment bankers and one software industry research analyst from Security
Bank who covers SolutionWare. Burton notes that the bankers from Security Bank have included detailed financial statements for SolutionWare in the offering prospectus and also disclosed that Security Bank provides a warehouse line of credit to SolutionWare. After the meeting, Burton calls Crossley to recommend the purchase of SolutionWare equity. Crossley heeds Burton's advice and tells him to purchase 5,000 shares. Before placing Crossley's order, Burton reads the
SolutionWare marketing materials and performs a detailed analysis of expected future earnings and other key factors for the investment decision. Burton determines that the offering would be a suitable investment for his own retirement portfolio in addition to Crossley's portfolio. United Partners, being a small firm, has no formal written policy regarding trade allocation, employee participation in equity offerings, or established blackout periods for employee trading. Burton adds his order to Crossley's order and places a purchase order for the combined number of shares with Security Bank. Burton is later notified that the offering was oversubscribed, and United Partners was only able to obtain roughly 75% of the desired number of shares. To be fair. Burton allocates the shares on a pro rata basis between Crossley's account and his own retirement account. When Burton notifies Crossley of the situation, Crossley is nonetheless pleased to have a position, though smaller than requested, in such a "hot" offering.
With respect to the road show meeting regarding the initial public offering of Solution Ware, did Security Bank comply with the requirements and recommendations of the CFA Institute Research Objectivity Standards?

Connor Burton, CFA, is the managing partner for United Partners, a small investment advisory firm that employs three investment professionals and currently has approximately $250 million of assets under management. The client base of United Partners is varied, and accounts range in size from small retirement accounts to a $30 million private school endowment. In addition to Burton's administrative responsibilities as the managing partner at United, he also serves as an investment advisor to several clients. Because United Partners is a small firm, the company does not employ any research analysts but instead obtains its investment research products and services from two national brokerage firms, which in turn execute all client trades for United Partners. The arrangement with the two brokers has enabled United to assure its clients that the firm will always seek the best execution for them by having both brokers competitively bid for United's business.
A prospective client, Harold Crossley, has approached Burton about shifting some of his personal assets under management from MoneyCorp to United Partners.
Burton provides Crossley with a packet of marketing information that Burton developed himself. The packet contains five years of historical performance data for the private school endowment, Unitcd's largest client. Burton states that the composite's management style and performance results are representative of the management style and returns that United can be expected to achieve for Crossley. Also included in the information packet are brief bios on each of United's three investment professionals. Crossley notices that all three of United's investment professionals are described as "CFA charterholders," but he is not familiar with the designation. In response to Crossley's inquiry. Burton explains the significance of the program by stating that the designation, which is only awarded after passing three rigorous exams and obtaining the requisite years of work experience, represents a commitment to the highest standards of ethical and professional conduct.
As a condition of moving his account to United Partners, Crossley insists that all of his trades be executed through his brother-in-law, a broker for Security Bank.
Security Bank is a large, New York-based broker/dealer but is not one of the two brokerage firms with which United currently does business. Burton contacts
Crossley's brother-in-law and determines that Security Bank's trade execution is competitive, but Crossley's account alone would not generate enough volume to warrant any soft dollar arrangement for research materials.
However, Crossley'-s brother-in-law does offer for Security Bank to pay a referral fee to Burton for directing any of United's clients to Security Bank's retail banking division. To bring Crossley on as a client, Burton agrees to the arrangement. Going forward. Burton will use Security Bank to execute all of Crossley's trades but will use research materials provided by the other two brokers to assist in the management of Crossley's account.
Several months later, Burton is invited to a road show for an initial public offering (IPO) for Solution Ware, a software company. Security Bank is serving as lead underwriter on SolutionWare's IPO. Burton attends the meeting, which is led by two investment bankers and one software industry research analyst from Security
Bank who covers SolutionWare. Burton notes that the bankers from Security Bank have included detailed financial statements for SolutionWare in the offering prospectus and also disclosed that Security Bank provides a warehouse line of credit to SolutionWare. After the meeting, Burton calls Crossley to recommend the purchase of SolutionWare equity. Crossley heeds Burton's advice and tells him to purchase 5,000 shares. Before placing Crossley's order, Burton reads the
SolutionWare marketing materials and performs a detailed analysis of expected future earnings and other key factors for the investment decision. Burton determines that the offering would be a suitable investment for his own retirement portfolio in addition to Crossley's portfolio. United Partners, being a small firm, has no formal written policy regarding trade allocation, employee participation in equity offerings, or established blackout periods for employee trading. Burton adds his order to Crossley's order and places a purchase order for the combined number of shares with Security Bank. Burton is later notified that the offering was oversubscribed, and United Partners was only able to obtain roughly 75% of the desired number of shares. To be fair. Burton allocates the shares on a pro rata basis between Crossley's account and his own retirement account. When Burton notifies Crossley of the situation, Crossley is nonetheless pleased to have a position, though smaller than requested, in such a "hot" offering.
According to CFA Institute Standards of Professional Conduct, Burton's recommendation to Crossley that he purchase shares of the Solution Ware initial public offering is most likely:

Connor Burton, CFA, is the managing partner for United Partners, a small investment advisory firm that employs three investment professionals and currently has approximately $250 million of assets under management. The client base of United Partners is varied, and accounts range in size from small retirement accounts to a $30 million private school endowment. In addition to Burton's administrative responsibilities as the managing partner at United, he also serves as an investment advisor to several clients. Because United Partners is a small firm, the company does not employ any research analysts but instead obtains its investment research products and services from two national brokerage firms, which in turn execute all client trades for United Partners. The arrangement with the two brokers has enabled United to assure its clients that the firm will always seek the best execution for them by having both brokers competitively bid for United's business.
A prospective client, Harold Crossley, has approached Burton about shifting some of his personal assets under management from MoneyCorp to United Partners.
Burton provides Crossley with a packet of marketing information that Burton developed himself. The packet contains five years of historical performance data for the private school endowment, Unitcd's largest client. Burton states that the composite's management style and performance results are representative of the management style and returns that United can be expected to achieve for Crossley. Also included in the information packet are brief bios on each of United's three investment professionals. Crossley notices that all three of United's investment professionals are described as "CFA charterholders," but he is not familiar with the designation. In response to Crossley's inquiry. Burton explains the significance of the program by stating that the designation, which is only awarded after passing three rigorous exams and obtaining the requisite years of work experience, represents a commitment to the highest standards of ethical and professional conduct.
As a condition of moving his account to United Partners, Crossley insists that all of his trades be executed through his brother-in-law, a broker for Security Bank.
Security Bank is a large, New York-based broker/dealer but is not one of the two brokerage firms with which United currently does business. Burton contacts
Crossley's brother-in-law and determines that Security Bank's trade execution is competitive, but Crossley's account alone would not generate enough volume to warrant any soft dollar arrangement for research materials.
However, Crossley'-s brother-in-law does offer for Security Bank to pay a referral fee to Burton for directing any of United's clients to Security Bank's retail banking division. To bring Crossley on as a client, Burton agrees to the arrangement. Going forward. Burton will use Security Bank to execute all of Crossley's trades but will use research materials provided by the other two brokers to assist in the management of Crossley's account.
Several months later, Burton is invited to a road show for an initial public offering (IPO) for Solution Ware, a software company. Security Bank is serving as lead underwriter on SolutionWare's IPO. Burton attends the meeting, which is led by two investment bankers and one software industry research analyst from Security
Bank who covers SolutionWare. Burton notes that the bankers from Security Bank have included detailed financial statements for SolutionWare in the offering prospectus and also disclosed that Security Bank provides a warehouse line of credit to SolutionWare. After the meeting, Burton calls Crossley to recommend the purchase of SolutionWare equity. Crossley heeds Burton's advice and tells him to purchase 5,000 shares. Before placing Crossley's order, Burton reads the
SolutionWare marketing materials and performs a detailed analysis of expected future earnings and other key factors for the investment decision. Burton determines that the offering would be a suitable investment for his own retirement portfolio in addition to Crossley's portfolio. United Partners, being a small firm, has no formal written policy regarding trade allocation, employee participation in equity offerings, or established blackout periods for employee trading. Burton adds his order to Crossley's order and places a purchase order for the combined number of shares with Security Bank. Burton is later notified that the offering was oversubscribed, and United Partners was only able to obtain roughly 75% of the desired number of shares. To be fair. Burton allocates the shares on a pro rata basis between Crossley's account and his own retirement account. When Burton notifies Crossley of the situation, Crossley is nonetheless pleased to have a position, though smaller than requested, in such a "hot" offering.
According to CFA Standards of Professional Conduct, Burton's participation in the Solution Ware offering most likely:

Mary Montpicr is an equity analyst with World Renowned Advisors. The firm provides investment advice and financial planning services globally to institutional and retail clients. Shortly after the company opened an office in Malaysia, Montpier's supervisor in the New York office. Rick Reynolds, asked her to relocate, and
Montpier agreed. The goal of the new Malaysian office is to serve as a source of international investment opportunities for U.S. clients. Montpier's main task is to cover small-cap stocks in the region and develop a network of contacts with other investment firms in the region.
Through her interaction with other analysts in Malaysia, Montpier learns that the use of material nonpublic information is common practice in analyst research reports and recommendations. Such practice is not prohibited by law in Malaysia. Montpier is encouraged by this knowledge because she recently observed several investment bankers meeting numerous times at an exclusive local country club with the CEOs of two Malaysian rival companies. It is public information that one of the companies is searching for potential acquisition targets. She has thought several times about issuing a recommendation on one of the companies but has not done so for fear of breaking the law. After learning of the Malaysian insider trading laws, Montpier recommends the stock of the acquisition target, which she had already established as a good investment through prior research.
Montpier has also learned that Malaysian law is very lax regarding outside consulting arrangements by investment professionals. It is common for analysts and portfolio managers to maintain ongoing consulting contracts with entities other than their primary employer. As a result of this, Montpier has begun financial service consultations for members of a local investment club. The club is developing an appropriate compensation package for her services, which to date have included financial planning activities and investment research. When Montpier established the relationship with the investment club, she informed them that she had a full-time job at World Renowned Advisers, which offers similar services.
After a year of consulting with the investment club, Malaysian law changed, requiring investment bankers, securities analysts, and portfolio managers to register with the Malaysian Securities Commission in order to engage in independent consulting practice. Since she is unaware of the change, Montpier does not file the proper registration forms and is later investigated, fined, and temporarily sanctioned by the Malaysian Securities Commission. Montpier is able to have the sanction, but not the fine, removed after appealing the Commission's ruling. Montpier's counterpart in the New York office is Jim Taylor, who has worked as an analyst at World Renowned Advisors for approximately seven years. Taylor researches health care and biotech stocks for the firm and participates in client meetings when managers are recommending stocks that Taylor covers. Taylor recently completed Level 1 of the CFA examination and is waiting for his results so he can register for the Level 2 examination.
In preparation for a client meeting, Taylor's supervisor, Jessica James, asks him to prepare a research report on attractive companies in the health care industry.
Since Taylor is busy preparing for company conference calls, James tells him to "throw something together from the street." To meet James' request, Taylor obtains reports on Immune Healthcare and Remedy Corp., two companies that he has heard about but has not researched. Taylor takes the original reports he obtains from a third-party, adds some general industry information, and submits "strong buy" recommendations to James for the stocks. He does not credit the original authors in the report, which is a violation of copyright law. Taylor includes his qualifications in the report and mentions that he is a "Level 2 Candidate in the CFA Program." Although written procedures require James to review all analyst reports prior to release, time constraints often prevent her from reviewing the reports prior to distribution. James recommends the stocks to her clients, who then purchase them. Several months later, the clients are able to sell the Immune
Healthcare and Remedy Corp. shares at annualized rates of return of 21% and 17%, respectively. James informs Taylor of the clients' successful investments and requests that he begin investigating potential biotech investments for the same group of investors.
To gain insight on biotech stocks, Taylor registers for an upcoming medical study, where he and others will be the subject of testing for the efficacy of several new drugs. On his application, Taylor indicates that he has the appropriate medical condition for the study and signs a confidentiality agreement, but he leaves the question about his occupation blank. During the study, Taylor learns that two of the new drugs on which Next Breakthrough Corp. is awaiting regulatory approval have serious negative side effects in patient testing. This information confirms existing research that Taylor has been working on in the health care sector. At the conclusion of the study, Taylor sends an e-mail to his clients recommending that they "sell" Next Breakthrough Corp. Over the next two weeks. Next Breakthrough releases information that the drugs in question have been held up by a regulatory agency pending additional investigation. The stock plunges over 30% on the news.
Has Montpier likely violated any CFA Standards of Professional Conduct by recommending the stock of the acquisition target company?

Mary Montpicr is an equity analyst with World Renowned Advisors. The firm provides investment advice and financial planning services globally to institutional and retail clients. Shortly after the company opened an office in Malaysia, Montpier's supervisor in the New York office. Rick Reynolds, asked her to relocate, and
Montpier agreed. The goal of the new Malaysian office is to serve as a source of international investment opportunities for U.S. clients. Montpier's main task is to cover small-cap stocks in the region and develop a network of contacts with other investment firms in the region.
Through her interaction with other analysts in Malaysia, Montpier learns that the use of material nonpublic information is common practice in analyst research reports and recommendations. Such practice is not prohibited by law in Malaysia. Montpier is encouraged by this knowledge because she recently observed several investment bankers meeting numerous times at an exclusive local country club with the CEOs of two Malaysian rival companies. It is public information that one of the companies is searching for potential acquisition targets. She has thought several times about issuing a recommendation on one of the companies but has not done so for fear of breaking the law. After learning of the Malaysian insider trading laws, Montpier recommends the stock of the acquisition target, which she had already established as a good investment through prior research.
Montpier has also learned that Malaysian law is very lax regarding outside consulting arrangements by investment professionals. It is common for analysts and portfolio managers to maintain ongoing consulting contracts with entities other than their primary employer. As a result of this, Montpier has begun financial service consultations for members of a local investment club. The club is developing an appropriate compensation package for her services, which to date have included financial planning activities and investment research. When Montpier established the relationship with the investment club, she informed them that she had a full-time job at World Renowned Advisers, which offers similar services.
After a year of consulting with the investment club, Malaysian law changed, requiring investment bankers, securities analysts, and portfolio managers to register with the Malaysian Securities Commission in order to engage in independent consulting practice. Since she is unaware of the change, Montpier does not file the proper registration forms and is later investigated, fined, and temporarily sanctioned by the Malaysian Securities Commission. Montpier is able to have the sanction, but not the fine, removed after appealing the Commission's ruling. Montpier's counterpart in the New York office is Jim Taylor, who has worked as an analyst at World Renowned Advisors for approximately seven years. Taylor researches health care and biotech stocks for the firm and participates in client meetings when managers are recommending stocks that Taylor covers. Taylor recently completed Level 1 of the CFA examination and is waiting for his results so he can register for the Level 2 examination.
In preparation for a client meeting, Taylor's supervisor, Jessica James, asks him to prepare a research report on attractive companies in the health care industry.
Since Taylor is busy preparing for company conference calls, James tells him to "throw something together from the street." To meet James' request, Taylor obtains reports on Immune Healthcare and Remedy Corp., two companies that he has heard about but has not researched. Taylor takes the original reports he obtains from a third-party, adds some general industry information, and submits "strong buy" recommendations to James for the stocks. He does not credit the original authors in the report, which is a violation of copyright law. Taylor includes his qualifications in the report and mentions that he is a "Level 2 Candidate in the CFA Program." Although written procedures require James to review all analyst reports prior to release, time constraints often prevent her from reviewing the reports prior to distribution. James recommends the stocks to her clients, who then purchase them. Several months later, the clients are able to sell the Immune
Healthcare and Remedy Corp. shares at annualized rates of return of 21% and 17%, respectively. James informs Taylor of the clients' successful investments and requests that he begin investigating potential biotech investments for the same group of investors.
To gain insight on biotech stocks, Taylor registers for an upcoming medical study, where he and others will be the subject of testing for the efficacy of several new drugs. On his application, Taylor indicates that he has the appropriate medical condition for the study and signs a confidentiality agreement, but he leaves the question about his occupation blank. During the study, Taylor learns that two of the new drugs on which Next Breakthrough Corp. is awaiting regulatory approval have serious negative side effects in patient testing. This information confirms existing research that Taylor has been working on in the health care sector. At the conclusion of the study, Taylor sends an e-mail to his clients recommending that they "sell" Next Breakthrough Corp. Over the next two weeks. Next Breakthrough releases information that the drugs in question have been held up by a regulatory agency pending additional investigation. The stock plunges over 30% on the news.
By not filing the proper registration forms with the Malaysian Securities Commission, did Montpier likely violate any CFA Institute Standards of Professional
Conduct?