3.1) Professionalism I (D): Misconduct

Question 1

What does sub-standard 1(D) misconduct state? (2)

Answer 1

• Must not engage in any professional conduct involving dishonesty, fraud, or deceit.
• Must not commit any act that reflects adversely on their professional reputation, integrity, or competence.

Question 2

True or false, a violation of this standard occurs whenever a violation of another standard occurs (i.e. “an indirect violation”).

Answer 2

True

Question 3

How do members ensure compliance or implementation of misconduct? (3)

Answer 3

• No dishonesty, fraud, or deceit.
• Maintain professional integrity, good reputation and competence. Not necessarily only illegal activities, but any that can affect these negatively,
• Do not commit acts that makes the profession look bad (e.g., drunkenness on the job).

Question 4

What are firms recommended to do in order to ensure complaince with misconduct? (2)

Answer 4

• Develop and adopt a code of ethics and make clear that unethical behavior will not be tolerated.
• Give employees a list of potential violations and sanctions, including dismissal.

Question 5

Example 10: Daniel Ben has just been forced to declare personal bankruptcybecause an investment consulting business he had invested most of his savings in had gone bankrupt, and as a result he is unable to pay all of his
personal creditors. The consulting business went bankrupt because of tax fraud committed by its management, headed by Frank Jerry. Are Ben and Jerry in compliance with Standard 1(D)?

Answer 5

Solution: Ben is in compliance, as his personal bankruptcy is not a reflection on his integrity, trustworthiness or character. However, Jerry clearly put the profession in a negative light through deceit, and is therefore in breach of Standard I(D).

Question 6

Example 11: Lewis Hamilton is a portfolio manager at Fast Lap Capital. However, he also has very strong views on environmental protection, and often takes part in non-violent demonstrations in support of “green” causes.
He has twice been arrested for illegally being in a high security area surrounding a nuclear power plant. Is Hamilton in compliance with Standard I(D)?

Answer 6

Solution: Although Hamilton committed an illegal act, this was in pursuit of a personal belief. His actions do not reflect badly on his integrity, reputation or competence, which are the things that Standard I(D) is meant to cover
and protect. He is therefore not obviously in contravention of Standard I(D)

Question 7

Example 12: Clive Barker is an investment analyst at Brilliant Securities, which allows its analysts to claim travel expenses when away on business. Over the past five years, Clive has been on international business trips six times. While overseas, he normally manages to “score” two extra days out of the company by intentionally arranging his meetings a few days apart. Is Barker in
compliance with Standard I(D)?

Answer 7

Solution: Standard I(D) is meant to ensure that investment professionals are trustworthy and that their integrity is above reproach. Clearly Barker’s behaviour does not comply with this desired character profile, and his deceit therefore puts him in breach of Standard I(D).