CFA Practice Question

CFA Practice Question

Neeson Pacino is the senior vice president in the corporate finance arm of Hindenberry Brokerage. Neeson was recently approached by Curare Creators, a pesticide manufacturer. Curare would like to offer new equity to raise capital and has provided Neeson with its current balance sheet and details about the pending projects. Neeson carefully goes over the numbers with a couple of project managers at Curare and also two of his analysts at Hindenberry. He concludes from these discussions that the numbers presented by Curare are overly optimistic. The revised numbers would seriously lower the offering price. Not relishing this prospect, Neeson decides to go ahead with the numbers as drawn up by Curare and directs the department to prepare the IPO with the offering price.

Neeson has ______
A. violated Standard V (A) Diligence and Reasonable Basis.
B. violated Standard III (B) Fair Dealing.
C. violated Standard III (A) Loyalty, Prudence, and Care.
Explanation: By knowingly misrepresenting the situation, Neeson has allowed the possibility that investors would end up paying more than the fair price in the seasoned equity offering. He has thus violated Standard V (A) - Diligence and Reasonable Basis.

User Contributed Comments 3

User Comment
murli Good one - reasonable basis and representation supporting the conclusion!
steved333 Seems to have also violated I(C) Misrepresentation. if there was an option for 1C i would choose that.
nfressell2 Or violating loyalty to customers who will be overpaying for the stock?
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