CFA Practice Question

CFA Practice Question

Kelly Foreman has just been hired as a sales associate by Treehouse Securities to promote its investment banking business. Treehouse is an up and coming firm which has been in business for about three years. It is considered a boutique firm. While talking to a potential client, Kelly claims that her firm can place an IPO of any size and has knowledge of most industries. Treehouse has placed small IPOs in the high-technology industry in the past but its department head who handled most of such IPOs has left for another firm. Kelly is pitching the firm's services to a high-tech client and is listing all the IPOs that they have brought to the market.
A. Kelly is in compliance with the Code and Standards.
B. Kelly has violated Standard I (C) - Misrepresentation.
C. Kelly has violated Standard III (D) - Performance Presentation.
Explanation: Kelly has violated Standard I (C) by claiming that the firm can place any size IPO when her firm has executed only small to medium sized IPOs. Furthermore, since the departure of their high-tech IPO expert, she should not claim expertise on the firm's behalf in that industry, until a new hire is found.

User Contributed Comments 7

User Comment
hannovanwyk I disagree because the fact that they only placed small ipo's in the past doesn't mean they not able to place bigger ones. but agree on the second part of the explanation though...
charliedba hannovanwyk: I think you should base your answers on the info provided and don't assume anything. The question does not talk about placing bigger IPOs so don't assume so.
sonofman i was thinking of performance presentation, what do u guys think
dipu617 I also chose performance presentation...
Mikehuynh From all the info provided in the question, C is the best answer. To me, no company can claim that it could place an IPO of any size and has knowledge of most industries.
manju79 Misrepresentation is the most direct violation here even though performance presentation is also violated.
GBolt93 Don't think performance presentation is violated. Nowhere do they mention anything about performance of their firm. Think GIPS type stuff for performance presentation e.g. surivorship bias, selected portfolios, simulated numbers presented as real, etc.
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