ETHICS

THIS QUESTION HAS SIX PARTS FOR A TOTAL OF 18 MINUTES.

Art Anderson, CFA, is a junior consultant at a small investment advisory firm. Following his
second visit to a potential client, Mrs. Peterson, Anderson mailed Peterson a personal data form
to complete and return. The purpose of the form was to gather information about Peterson’s
financial situation, investment experience, and investment objectives. Upon receiving the
completed form in the mail, Anderson had his assistant prepare a typed version of the document.
Anderson then reviewed the information before calling Peterson to clarify several items.

During the phone conversation, Peterson stated that it is extremely important that the information
she is providing to Anderson be considered confidential for several reasons. First, as a result of a
lawsuit from a former neighbor, Peterson needs to hide some assets to avoid paying a judgment.
Therefore, she wants to open up two separate accounts: a small one in her name and a second
account in the name of the company that Peterson owns. Second, Peterson told Anderson that she
is about to file for divorce from her husband and does not want her husband to know about the
accounts. Before ending the conversation, Peterson asked if Anderson was still confident in his
recommendation to buy shares of Brown Company stock. Anderson assured Peterson that this
was a good idea. Peterson does not know that Anderson bought 1,000 shares of the stock for his
own account three years earlier.

After collecting all the information he needed, Anderson visited with his supervisor to ask advice
about opening the account in the name of Peterson’s company. The supervisor told Anderson
that Peterson should open the account in the name of a fictitious company instead of using the
name of Peterson’s company. This would make it more difficult for the courts to find the assets.
However, the supervisor stated, “Opening an account in the name of a fictitious firm is illegal so
I cannot suggest that you do it. I am only saying that, if you did this, it would help Peterson
accomplish her objective.”

Later that day, Anderson went to a restaurant and met his old college roommate, Doug White,
who is now a divorce attorney. Anderson told White all about Peterson’s situation and suggested
that if White needs a new client, he should contact Peterson, who is about to divorce her
husband. White thanked Anderson for the lead but said that he currently had more clients than he
could handle.

A. Did Anderson violate the Code and Standards by telling White about Peterson’s impending
divorce? Justify your response with one reason.

(3 minutes)

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B. Did Anderson violate the Code and Standards by the way he gathered information from
Peterson using the personal data form? Justify your response with one reason.

(3 minutes)

C. Did Anderson violate the Code and Standards when he suggested that Peterson buy shares
of Brown Company stock when Anderson already owns shares? Justify your response with
one reason.

(3 minutes)

D. Did Anderson’s supervisor violate the Code and Standards when he told Anderson about a
more effective way to hide assets? Justify your response with one reason.

(3 minutes)

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E. If Anderson’s employer is not a member of the CFA Institute, what action is required of
Anderson under the CFA Institute’s Standards of Professional Conduct? What other
actions should Anderson consider taking?

(3 minutes)

F. Is Anderson in violation of the Code and Standards if he informs the legal authorities that
Peterson is attempting to hide assets from the courts? Justify your response with one
reason.

(3 minutes)