Description

Ethical and Professional Standards- Application
December 2023 Examination

Q1. Morget is a US – based business that created an iPhone application (App) user to
review restaurants. The company initiated an initial coin offering (ICO) to sell digital
tokens to raise $28 million in capital to invest in improving the App. The company
advertised and promoted the offering on the website, in a white paper and on social
media channels and messages boards, such as Twitter and Facebook, particularly in
focused aimed at those interested in investing in digital assets. In the communication
about the offering, Morget said it would use the proceeds to create an “ecosystem” in
which the company, its App users, restaurants, and others could use the tokens to buy
and sell goods and services. Morget explained that it expects the tokens to increase in
value as a result of company’s efforts. In addition, increased participation in the
ecosystem and the use or “burning” of tokens would also help increase the value of
tokens. Finally, Morget stated that it intended for the tokens to trade on a secondary
market. Morget’s ICO was acceptable or unacceptable. Justify your answer with
explanation.
Ans:
Introduction
In recent years, initial Coin services (ICOs) have emerged as a popular means for companies
to elevate capital by promoting digital tokens. Those tokens are often used to fund projects,
structures, or programs. Morgen, a US-based business, hired an ICO to generate $28 million
in capital to enhance its restaurant review iPhone application. However, ethical and
professional standards must be carefully considered for fundraising events. This analysis
delves into the moral and expert dimensions of Morget’s ICO by evaluating its advertising,
promotion, and promises made to capacity investors.
Concept & Application
1. Transparency and Accuracy in Communication
One of the fundamental ethical principles in engaging in an ICO is transparency. Companies
must offer correct and precise statistics to capability buyers regarding their services. In the
case of Morget, the employer marketed and promoted its ICO via various channels, which
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Q2. Desmond, CFA, is the Chief Financial Officer of EduTech Company a leading
semiconductor manufacturer. For the past few months, Desmond has led the EduTech
team in talks to buy a majority stake in Fix Conductor; a smaller privately owned
Semiconductor Company that has a patented technology that could potentially cut the
chip manufacturing costs of EduTech by almost 40%. After intense negotiations,
EduTech is able to close the deal with Fix Conductor late on Friday night. Desmond
wants to share the good news with his wife, so he takes out the phone and types
“Finally! EduTech has acquired a majority stake in Fix Conductor. The deal is sealed!”
But instead of sending the message to his wife, he accidentally posts it on his personal
Facebook page. The next morning (a Saturday), he wakes up and discovers the blunder.
Did Desmond violate any part of the CFA Institute Code of Ethics or Standard of
Professional Conduct? Justify your answer. (10 Marks)
Ans:
Introduction
In finance, moral conduct and professional standards are essential pillars that govern the
behavior and actions of financial practitioners. The CFA Institute Code of Ethics and
requirements of expert behavior provide a comprehensive framework that courses individuals
like Desmond, a primary economic Officer (CFO) at EduTech corporation and a Chartered
Economic Analyst (CFA), in upholding integrity, transparency, and fiduciary obligation. This
case study delves into an incident regarding Desmond and scrutinizes whether he adhered to
the ethical principles outlined by the CFA Institute inside the context of a great business deal.
However, a reputedly minor lapse in verbal exchange occurs when Desmond inadvertently
discloses private information about the acquisition on his non-public Facebook web page.
Q3. Nishanth, Head of Research at a long- short equity fund, leads a team of four
analyst. One of the fund’s portfolio managers asks Nishanth to look at a particular
small-cap company as a possible investment target. Because there is little information
available on the company, Nishanth assigns the challenging task to Binoy, one of the
fund’s top junior analysts, who spends a week conducting the research. Binoy builds a
cash flow projection model that shows the company is deeply undervalued. Nishanth
briefly reviews the model and publishes a research report on the company with the
author listed as the Research Department that recommends a “Buy” at the current
price. The fund makes substantial investment in the company’s stock. Later, several
brokerage houses come out with the research pieces on the company that includes cash
flow projections that are considerably lower than Binoy’s model. Over the course of six
months, the investment looses 25% of its value. Nishanth thoroughly reviews Binoy’s
model and discovers two assumptions that eventually proved erroneous as well as an
arithmetic mistake.
a) Did Binoy violate or did not violate the CFA institute Code of Ethics and Standards
of Professional Conduct? (5 Marks)
Ans :
Introduction
In the finance industry, ethical conduct and expert standards are crucial in maintaining the
integrity of financial markets and safeguarding traders’ interests. The CFA Institute Code of
Ethics and standards of professional behavior give a comprehensive framework guiding the
conduct and duties of funding experts. This moral code emphasizes the importance of
accuracy, diligence, and prudence in funding analysis and decision-making. In this context,
we will examine a scenario related to Nishanth, Head of studies at a long-brief equity fund,
b) Did Nishanth violate or did not violate the CFA institute Code of Ethics and
Standards of Professional Conduct? (5Marks)
Ans:
Introduction
The CFA Institute Code of Ethics and Standards of Professional Conduct is a fundamental set
of guidelines that financial professionals, including portfolio managers and analysts, must
follow in their day-to-day Operations. These guidelines emphasize moral behavior, integrity,
and responsibility towards clients and the marketplace. In this scenario, we can observe
whether Nishanth, the top of research at a long-brief equity fund, violated these ethical