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Logic Behind Ethics Answer

ec_testec_test USAPosts: 38 Sr Associate
edited December 2014 in CFA Level I
Hi all,

This problem is in one of the Mock Tests and can't understand the logic of the correct answer:

Justin Blake, CFA, a retired portfolio manager, owns 20,000 shares of a small public company that he would like to sell because he is worried about the company's prospects. He posts messages on several internet bulletin boards. The messages read, "This stock is going up once the pending patents are released, so now is the time to buy. The stock is a buy at anything below $3. I have done some close research on these guys." According to the Standards of Practice Handbook, Blake most likely violated the Code and Standards associated with:

A. Integrity of Capital Markets, and Conflicts of Interest.
B. Integrity of Capital Markets, but not Conflicts of Interest.
C. neither Integrity of Capital Markets nor Conflicts of Interest.

Answer = B Blake violated Standard II(B) regarding the Integrity of Capital Markets by engaging in a practice that is likely to artificially inflate trading volume.

I selected A because Blake owns 20,000 shares and he is failing to disclose that on the internet.

Is there a "logical explanation" of why he is not violating the standard related to Conflicts of Interest?



  • Eprak22Eprak22 London Posts: 4 Associate
    edited December 2014
    I think the logic is that Integrity of Capital Markets is violated as he posts on internet boards - he is trying to manipulate the market but Conflicts of interest is not violated because that's more related to when you don't disclose a conflicting position in holding a stock that you are recommending to clients (etc.). I think you are thinking of Misrepresentation (i.e failing to disclose his stock holdings) - but this is more when you provide investment research to actual clients over an internet website whereas this guy is just posting randomly over the internet to move the price so it's favourable to him.  
  • Oh thank you. I think I mixed Misrepresentation with Conflicts of Interest indeed. I hope I can pick on those details on the Exam Day! :smiley: 
  • Haha Ethics is full of confusing assumptions and questionable answers like this. That's why no matter how hard you study Ethics you can never master it. The answer is clearly B even to me but for some reason it's not.
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