BUS3044F 2012 Ethics Tutorial Due: Week beginning 26 March 2012

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Note: For the following two questions you only need to focus on the first three standards of the
CFA Institutes Code of Investment Ethics:
Question 1
Mandla Mokoena is an analyst at Real DeaI Investment Services. Mokoenas role is to analyse AltX shares
and to write reports on them for Real Deals clients. These reports are made available to all Real Deals
clients, and are also used by Real Deal as an input into its investment process on behalf of its
discretionary clients.
Mokoena has just finished researching Deep Down Mining, an AltX-listed junior mining company.
Moekoenas research was conducted over a period of two months, and included five deep Down-
sponsored visits to several of the companys mines throughout Africa. During the visits, Deep Downs
management on several occasions hinted at a willingness to give Mokoena an indication of the
companys current financial performance. They also mentioned how undervalued they believe the
companys shares are, and how well Real deals clients will do if Real Deal made a major investment in
Deep Down. Mokoena ignored the above hints.
For his report on Deep Down Mokoena made use of other analysts research, as well as information from
various websites. Lastly, he used share price data obtained from a market data provider, but did not
attribute this data to its source in the report.
Gary Henderson is Real Deals head trader. He hears that Mokoena is about to issue a report
recommending Deep Down as a strong buy. Knowing that the report is likely to lead to extensive buying
of Deep Down shares, Henderson immediately buys a large block of shares for Real Deals discretionary
clients before the price goes up. Subsequently, Henderson ensures that this block of shares is
meticulously allocated to all these clients portfolios on a pro-rate basis.
In terms of the CFA Code of Investment Ethics, discuss:
a) Mokoenas behaviour (max: 1 page)
b) Deep Down (and its managements) behaviour (max: page)
c) Hendersons behaviour. (max: page)
Your answers should be based on the case study, and should indicate relevant CFA Code of Investment
Ethics Standards, and whether they are being contravened or not. Where possible include motivation. Do
not read anything into the case study that is not explicitly stated.
For instance, an answer may include something of the nature of:
Mokoena should make sure that the website information he uses are from a reliable and recognised
source, otherwise he will be in contravention of Standard 5A: Investment Analysis, Recommendations
and Action: Diligence and Reasonable Basis, or:
Mokoena is not in contravention of...................... because he.........................., or:
Moekoena is in violation of Standard ..................... unless ..................
Question 2
Katelyn Plaatjies is an investment manager whose clients include Jane Botha, the 70-year old widow of a
millionaire industrialist, and the pension fund of Brick-by-Brick (BbB) Construction.
Botha and Plaatjies have an excellent relationship. Botha tells Plaatjies that as she has no idea of
investments and has full faith in Plaatjies investment ability, not to mention that there is in any case a
mandate and IPS in place, she sees no reason why the two of them should meet again unless there is a
serious crisis, which she defines as a minimum 20% loss in her portfolio from its current level. Knowing
that these meetings frustrate both her and Botha immensely due to Bothas complete disinterest,
Plaatjies agrees.
While Botha is in her office, the phone rings. Plaatjies answers and a heated telephonic argument with
her ex-husband follows, ending in her slamming down the phone. She apologises to Botha for this, and
continues with the meeting. Afterwards, she sends off an email with Bothas contact details to her
companys insurance division, as Botha mentioned that she would like some advice on her short-term
insurance situation.
The next day Plaatjies meets with the trustees of BbBs pension fund. The fund has recently lost quite a
bit of its value due to volatile markets, and the trustees, who are concerned that the fund members will
blame them for this, insist that Plaatjies makes more investments in risky equities in order to try to
recover these losses.
Shortly afterwards Plaatjies runs into Sunesh Govender, who tells her that he has uncovered a sure bet
in Green Sky, a newly listed budget airline that he believe will double in price within the next 5 years, but
as a growth stock is unlikely to pay dividends. Plaatjies immediately sells enough bonds out of both
Bothas and BbBs portfolios to buy a large number of Green Sky shares for each of these portfolios.
Discuss the above scenarios in terms of the CFA Institutes Code of Investment Ethics (maximum 1.5
pages). You may comment on the actions of all involved (both positively and negatively) and also indicate
actions etc. that should be taken in terms of the Code. The same instructions as in Question 1 apply.

Question 3 (Discussion Question)
Read the following and formulate your own opinion(s) for discussion in your tutorial session:
http://sevenpillarsinstitute.org/case-studies/raj-rajaratnam-and-insider-trading
The following points can be addressed:
1) What are the pros and cons of insider trading laws and rules? Should they even be there?
2) How in your opinion does insider trading impact the markets, small investors etc.?
3) What should constitute insider trading? Think of some real or imaginary examples, especially
borderline cases (grey areas).
4) How do insider trading rules protect and /or complicate the investment industry and the jobs of
investment professionals?
5) What are some of the challenges in proving insider trading?
6) How much insider trading do you think is really happening?