CFA Practice Question

CFA Practice Question

George has taken charge of an underwriting of securities at a brokerage firm. He gets some information from a company official indicating that the financial statements filed with the registration statement may be incorrect and overstate the issuer's earnings. Which is the best course of action for George?
A. Seek legal advice from the firm's general counsel.
B. Notify his supervisor of the issue and continue working.
C. Immediately terminate all dealings with the client.
Explanation: George should seek the advice of his brokerage firm's general counsel. If George has received advice from the firm's general counsel, he has a defense for himself against allegations that he violated Standard I as long as he (1) has reason to believe that his attorney is both competent to render the advice sought and unbiased and (2) follows the attorney's advice without any material variation.

User Contributed Comments 13

User Comment
stefdunk that's with regards to forming an opinion. in this case the registration statement is falacious, which is a whole different story
option Info is not material and non-public. It's matter of opinion from company official.
CocaColas The key word is "may be incorrect"..
orchid shouldn't he notify his supervisor first before seek for legal counsel?
Nightsurfer I'm with orchid. Wouldn't you tell your Super first then get legal council? Why does it have to one then the other? Or, rather, why do you have to crank it up so much so fast? Why can't you talk to your boss first?
gerry CFA Institute recommends to seek legal advice, instead of talking to your supervisor. I know it's not practical but you'd better answer this way.
ontrack Remember George is in-charge of the underwriting, so it seems logical to believe that he is the supervisor for this issue. Hence he should talk to the general counsel.
bgchief I agree that legal council should be after he consults his supervisor. An employee has a responsibility to his clients first, his boss second and finally to him/herself. Going immediately to seek legal advice for his protection seems rather selfish to me and not very corrective in regards to the problem at hand.
JepTang It is indeed the recommended procedure for compliance by CFA Institute to seek legal counsel. Moreover, notice also that after notifying your supervisor you are to continue your work as if informing your supervisor would be a candidate's/member's responsibility.
Riley85 Although the CFA Institute recommends that members seek the advice of legal counsel, it says that "the reliance on such advice does not absolve the member or candidate from the requirement to comply with the law or regulation" (Page 18). Hence, shouldn't the answer be C, since knowledge of the mistatement violates either the SEC Act of 1933 or 1934, depending on whether the client has previously outstanding issues.
Borsh notifying supervisor is fine... but just continuing is not.
Seal Facebook???
greenasha I also thought that it is not right to continue working until supervisor instructs you
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