Trader is neither a CFA charterholder nor a CFA Institute's member, but she is bound by CFA Institute's Code and Standards to the extent that they are incorporated in her firm's compliance policies.
Standard IV (C) - Duties to Employers: Responsibilities of Supervisors
Those with legal or compliance responsibilities, such as the designated compliance officer, do not become supervisors solely because they occupy such named positions. Determining supervisory responsibilities depends on a "facts and circumstances test," by which the SEC and CFA Institute's Standards essentially define a supervisor as a person who has authority to hire, fire, reward, and punish an employee. In this case, even though Trader does not report directly to Cuff, Cuff supervises the actions of all employees of the firm (and has the power to hire, fire, reward, and punish them) in her dual responsibilities as CPO and compliance officer. Therefore, she must comply with Standard IV (C).
As a supervisor, Cuff has a responsibility to take appropriate steps to prevent those she oversees from violating applicable statutes, regulations, or CFA Institute's Standards. As compliance officer, she must also ensure that the firm's policies are being followed and that violations of those policies are addressed.
Standard VI (A) - Disclosure of Conflicts and Standard IV (B) - Additional Compensation Arrangements
Trader violated both standards by (1) failing to disclose the conflict of interest that she had as a result of her ownership of Atlantis Medical Devices stock options and (2) failing to disclose to her employer the additional compensation she received as a director of AMD. The stock options and the cash compensation both should have been disclosed.
Standard V (A) - Diligence and Reasonable Basis
Trader had previously determined that AMD was not a suitable investment for her clients. Under pressure from James, Trader has reversed her stance on AMD and has thus violated Standard V (A).
Standard III (A) - Duties to Clients: Loyalty, Prudence and Care
By investing in and influencing the public offering of AMD in order to boost the price of this stock, Trader misused her professional position for personal benefits and breached her fiduciary duty to her clients, thus violating Standard III (A).
Although Trader, as a director of AMD, has a duty to that companies' shareholders, she cannot void her obligation to her clients at Super Selection and, in the case situation, should have acted in client interests first.
Standard III (C) - Duties to Clients: Suitability
Trader violated Standard III (C) when she purchased AMD stock for her clients and did not take into consideration their needs and circumstances.
Standard VI (B) - Priority of Transactions
Trader violated Standard VI (B) by trading in close proximity to her clients' trades and may have benefited from the impact of her clients' trades on the stock price. The recommendations of CFA Institute's Personal Investing Task Force Report, which Super Selection had incorporated in its standards, require duplicate broker confirmations and preclearance on personal trades, but Trader did not follow these procedures.
In this case, Trader circumvented Super Selection's procedures by not reporting trades and brokerage accounts. Nevertheless, Cuff should have made efforts to ensure that Super Selection's policies were being followed. Cuff should review her firm' s policies and procedures to make sure they are adequate and determine whether any adjustments should be made to implement or improve them. If adjustments are necessary, she should carry them out.
Cuff should also make sure that employees of Super Selection are periodically informed of the Code and Standards and its requirements so as to eliminate any uncertainty about which employees are covered and what responsibilities they have to comply with these standards.
Cuff needs to investigate Trader's personal transactions thoroughly and recommend appropriate sanctions for Trader's behavior. Cuff must also ensure that her recommended sanctions are followed to completion.