Independence SIM - ME 3 Flashcards
A covered member invested $200,000 in a limited partnership that is not the covered member’s client. The partnership used the proceeds to make various stock investments. Of this amount, $3,000 was invested in the stock of the covered member’s client.
Independence is impaired if value is material to covered members net worth
Since the $3,000 of investment in the stock of the covered member’s client is a removed relationship, it is an example of an indirect investment. Indirect investments impair independence of a covered member if it is material to the covered member’s net worth.
Solve note —> Direct —> Yes done
If NO ——> Is it Material —-> Yes Done
If NO —–> No impaired
A covered member owns 4 percent of the outstanding shares of a diversified mutual fund. One of the underlying investments in the mutual fund is the stock of one of the covered member’s clients.
Independence is not impaired because financial interest is NOT material.
The stock of one of the covered member’s clients is an underlying investment in the mutual fund that the covered member owns. Therefore, it is an indirect investment. The covered member’s ownership of the mutual fund is 4 percent, and the diversified mutual fund would have many investments. With only a 4 percent interest in the mutual fund, the corresponding financial interest in the individual underlying investments is likely immaterial. So, the covered member’s financial interest in that investment does not impair the covered member’s independence given it is not material.
A covered member is a beneficiary in a trust that holds an 8 percent stock ownership interest in the covered member’s client and guides the trust’s investments.
Independence is impaired because there is a direct financial interest in the client.
The covered member is an active trustee and guides the trust’s investments. Therefore, the investments within the trust are direct financial interests. The covered member’s direct financial interest impairs independence.
A covered member’s spouse owns 1 percent of the outstanding shares of the covered member’s client.
Idependance is impaired because there is a direct financial interest in the client.
A covered member’s spouse is subject to independence rules. Stock ownership is an example of a direct financial interest. If the covered member’s spouse has a direct financial interest in the covered member’s client, independence is impaired.
A covered member owns 0.04 percent of the outstanding stock of the covered member’s client. The value of this investment is not material to the covered member’s net worth.
Independence is impaired because there is a direct financial interest in the client.
The covered member’s investment in the client’s stock represents a direct financial interest. Independence is impaired if the covered member has a direct financial interest in a client, regardless of materiality.
A covered member’s cousin is a 30 percent general partner in a partnership that invested in 40 percent of the outstanding stock of the covered member’s client.
Independance is NOT impaired because a direct or indirect financial ownership interest does NOT exist.
A covered member’s cousin is not subject to independence rules because the cousin is not a member of the covered member’s immediate family. Therefore, there is no direct or indirect financial ownership interest for the covered member, and independence is not impaired.
A covered member is a 6 percent limited partner in a partnership that invested in a client of the covered member’s firm.
Independence is impaired if value is material to covered members net worth
Since the covered member is a limited partner, the investment is an indirect financial interest. Indirect financial interests impact materiality if they are material to the covered member. The covered member’s independence is impaired if the value of the financial interest in the client of the firm is material to the covered member’s net worth.
