QUESTION: 57

Susan Jackson, with HRS Investments, is appearing in court as an expert witness. She will have to use research done at HRS, to which she did not contribute directly, during her testimony. Which of the following is true, in relation to Jackson's need to comply with Standard II (C)?

Jackson is representing herself and may or may not attribute any of HRS's research.
Jackson is representing HRS and must attribute any of HRS's research.
Jackson is representing herself and must attribute any of HRS's research.
There is not enough information given to answer this question.
Jackson is representing HRS and may or may not attribute any of HRS's research.

Answer(s): C

Explanation:

Expert witnesses represent themselves, not organizations. Thus, Susan must attribute any of HRS's research to HRS and the team that conducted the research.

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QUESTION: 58

Which of the following AIMR Standards states that additional compensation agreements must be disclosed to the employer?

IV
III (D)
V
VI (B)

Answer(s): B

Explanation:

Standard III (D) - Disclosure of Additional Compensation Arrangements states: "Members shall disclose to their employer in writing all monetary compensation or other benefits that they receive for their services that are in addition to compensation or benefits conferred by a member's employer."

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QUESTION: 59

When an analyst reaches conclusions about a firm's impending announcements before the actual release of information, using non-material, non-public information in conjunction with public information, insider trading charges cannot be leveled against her. This arises from a legal defense against insider trading charges known
as:

the Shingles Theory.
the question is based on false premise. The analyst can be held responsible for insider trading if she uses any inside information in her conclusions.
the Insider Legal Statute.
the Mosaic Theory.

Answer(s): D

Explanation:

Insider trading charges arise only when the inside information used is material and non-public. Analysts who use non-material inside information in conjunction with publicly available data to draw conclusions which happen to be the same as those that would be derived given material inside information are shielded from insider trading charges under the "Mosaic Theory." The logic behind the defense is that investment analysts are exposed to a wide variety of public information (i.e., a "mosaic of information") and already have a good idea about what the information means. Further, the inside information, when non-material, cannot (by definition) have been the primary shaper of the final conclusions. Hence, the possession of the inside information makes only marginal contribution to the conclusions and as such, should not trigger insider trading violations.

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QUESTION: 60

Smith, a research analyst with a brokerage firm, decides to change his recommendation on the common stock of Green company, Inc., from a buy to a sell. He mails this change in investment advice to all the firm's clients on Wednesday. The day after the mailing, a client calls with a buy for 500 shares of Green Company. In this circumstance, Smith should:

accept the order.
advise the customer of the change in recommendation before accepting the order.
not accept the order because it is contrary to the firm's recommendation.
not accept the order until five days have elapsed after the communication of the change in recommendation.

Answer(s): B

Explanation:

Under Standard IV (B.3), investment recommendations must be disseminated to all clients at the same time, so that all clients are treated fairly. The client's request is contrary to Smith's latest recommendation which he has not yet received. Smith must now make sure that the client receives the changed recommendation. If the client still wants to place a buy order for the shares, only then is Smith obligated to comply with the client's directive.

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QUESTION: 57

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QUESTION: 58

Explanation:

QUESTION: 59

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QUESTION: 60

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