Seeing is believing!

Before you order, simply sign up for a free user account and in seconds you'll be experiencing the best in CFA exam preparation.

Basic Question 1 of 6

Cliff Fleisher, CFA, is an analyst with a brokerage company. This company has a large investment advisory department that manages three mutual funds and many other accounts. For some time, Fleisher has been recommending the purchase of Gifford Corporation as a long-term investment. Many of the company's brokerage and advisory clients and the three mutual funds have purchased shares of Gifford Corporation based on Fleisher's recommendation. At 9:00 a.m. on Monday, Gifford Corporation makes an announcement that immediately leads Fleisher to change his recommendation from "buy" to "sell". Fleisher promptly tells the company's mutual fund managers, who immediately sell 50 percent of their holdings in the stock, causing the price to drop 20 percent. On Monday afternoon, Fleisher tells his company's large institutional clients about the change in his recommendations. On Tuesday morning, Fleisher publishes a research report for general circulation detailing the changed recommendation. According to CFA Institute's Standards of Professional Conduct, which of the following statements are true?

I. Fleisher should have disclosed his changed recommendation to all of the company's clients as soon as practical.
II. Fleisher did not need to issue a new research report because a change from "buy" to "sell" is not material.
III. Fleisher should not have disclosed the changed recommendation to the mutual fund manager and institutional clients before disseminating the report generally.

User Contributed Comments 5

User Comment
TheProfet This is a classic question that can get you in trouble. At first instinct, I thought the answer was I. only. I thought this because I inferred that the mutual fund managers and instutional clients had a right to get the information quicker than the others. Obviously, this is wrong. Simultaneous dissemination appears to be the most fair way to approach this fact pattern.
0is4eva Simultaneous dissemination is key. After the newsflash you can discuss the report in detail with a select group of investors/clients who has paid for additional services through larger fees etc.
ZERGEN I appears to be an incorrect answer as different service levels are allowed.
dblueroom different service levels are allowed; however, simultaneous dissemination must occur before you could get in details with select groups. obviously the mutual funds and bigger accounts (institutional investors) are benefited at the detriment of other investors.
quanttrader simultaneous dissemination if practically possible, yet under time constraints those clients most exposed should be given priority
You need to log in first to add your comment.
I am happy to say that I passed! Your study notes certainly helped prepare me for what was the most difficult exam I had ever taken.
Andrea Schildbach

Andrea Schildbach

Learning Outcome Statements

demonstrate the application of the Code of Ethics and Standards of Professional Conduct to situations involving issues of professional integrity

recommend practices and procedures designed to prevent violations of the Code of Ethics and Standards of Professional Conduct

identify conduct that conforms to the Code and Standards and conduct that violates the Code and Standards

CFA® 2024 Level I Curriculum, Volume 6, Module 3.