Standards of Practice Guidance 2014
Standard I(D) Misconduct
Updated January 2019
Members and Candidates must not engage in any professional conduct involving dishonesty, fraud, or deceit or commit any act that reflects adversely on their professional reputation, integrity, or competence.
- Recommended Procedures for Compliance
- Application of the Standard
- Example 1 (Professionalism and Competence)
- Example 2 (Fraud and Deceit)
- Example 3 (Fraud and Deceit)
- Example 4 (Personal Actions and Integrity)
- Example 5 (Professional Misconduct)
- Example 6 (Scope of Professional Activities) (Added January 2019)
- Example 7 (Approved Prep Provider Program Misconduct) (Added January 2019)
- Example 8 (Actions of Harassment) (Added January 2019)
- Example 9 (Actions of Harassment) (Added January 2019)
Whereas Standard I(A) addresses the obligation of members and candidates to comply with applicable law that governs their professional activities, Standard I(D) addresses all conduct that reflects poorly on the professional integrity, good reputation, or competence of members and candidates. Any act that involves lying, cheating, stealing, or other dishonest conduct is a violation of this standard if the offense reflects adversely on a member’s or candidate’s professional activities. Although CFA Institute discourages any sort of unethical behavior by members and candidates, the Code and Standards are primarily aimed at conduct and actions related to a member’s or candidate’s professional life.
Conduct that damages trustworthiness or competence may include behavior that, although not illegal, nevertheless negatively affects a member’s or candidate’s ability to perform his or her responsibilities. For example, abusing alcohol during business hours might constitute a violation of this standard because it could have a detrimental effect on the member’s or candidate’s ability to fulfill his or her professional responsibilities. Personal bankruptcy may not reflect on the integrity or trustworthiness of the person declaring bankruptcy, but if the circumstances of the bankruptcy involve fraudulent or deceitful business conduct, the bankruptcy may be a violation of this standard.
In some cases, the absence of appropriate conduct or the lack of sufficient effort may be a violation of Standard I(D). The integrity of the investment profession is built on trust. A member or candidate—whether an investment banker, rating or research analyst, or portfolio manager—is expected to conduct the necessary due diligence to properly understand the nature and risks of an investment before making an investment recommendation. By not taking these steps and, instead, relying on someone else in the process to perform them, members or candidates may violate the trust their clients have placed in them. This loss of trust may have a significant impact on the reputation of the member or candidate and the operations of the financial market as a whole.
Individuals may attempt to abuse the CFA Institute Professional Conduct Program by actively seeking CFA Institute enforcement of the Code and Standards, and Standard I(D) in particular, as a method of settling personal, political, or other disputes unrelated to professional ethics. CFA Institute is aware of this issue, and appropriate disciplinary policies, procedures, and enforcement mechanisms are in place to address misuse of the Code and Standards and the Professional Conduct Program in this way.Back to top
Recommended Procedures for Compliance
In addition to ensuring that their own behavior is consistent with Standard I(D), to prevent general misconduct, members and candidates should encourage their firms to adopt the following policies and procedures to support the principles of Standard I(D):
- Code of ethics: Develop and/or adopt a code of ethics to which every employee must subscribe, and make clear that any personal behavior that reflects poorly on the individual involved, the institution as a whole, or the investment industry will not be tolerated.
- List of violations: Disseminate to all employees a list of potential violations and associated disciplinary sanctions, up to and including dismissal from the firm.
- Employee references: Check references of potential employees to ensure that they are of good character and not ineligible to work in the investment industry because of past infractions of the law.
Application of the Standard
Example 1 (Professionalism and Competence):
Simon Sasserman is a trust investment officer at a bank in a small affluent town. He enjoys lunching every day with friends at the country club, where his clients have observed him having numerous drinks. Back at work after lunch, he clearly is intoxicated while making investment decisions. His colleagues make a point of handling any business with Sasserman in the morning because they distrust his judgment after lunch.
Comment: Sasserman’s excessive drinking at lunch and subsequent intoxication at work constitute a violation of Standard I(D) because this conduct has raised questions about his professionalism and competence. His behavior reflects poorly on him, his employer, and the investment industry.
Example 2 (Fraud and Deceit):
Howard Hoffman, a security analyst at ATZ Brothers, Inc., a large brokerage house, submits reimbursement forms over a two-year period to ATZ’s self-funded health insurance program for more than two dozen bills, most of which have been altered to increase the amount due. An investigation by the firm’s director of employee benefits uncovers the inappropriate conduct. ATZ subsequently terminates Hoffman’s employment and notifies CFA Institute.
Comment: Hoffman violated Standard I(D) because he engaged in intentional conduct involving fraud and deceit in the workplace that adversely reflected on his integrity.
Example 3 (Fraud and Deceit):
Jody Brink, an analyst covering the automotive industry, volunteers much of her spare time to local charities. The board of one of the charitable institutions decides to buy five new vans to deliver hot lunches to low-income elderly people. Brink offers to donate her time to handle purchasing agreements. To pay a long-standing debt to a friend who operates an automobile dealership—and to compensate herself for her trouble—she agrees to a price 20% higher than normal and splits the surcharge with her friend. The director of the charity ultimately discovers the scheme and tells Brink that her services, donated or otherwise, are no longer required.
Comment: Brink engaged in conduct involving dishonesty, fraud, and misrepresentation and has violated Standard I(D).
Example 4 (Personal Actions and Integrity):
Carmen Garcia manages a mutual fund dedicated to socially responsible investing. She is also an environmental activist. As the result of her participation in nonviolent protests, Garcia has been arrested on numerous occasions for trespassing on the property of a large petrochemical plant that is accused of damaging the environment.
Comment: Generally, Standard I(D) is not meant to cover legal transgressions resulting from acts of civil disobedience in support of personal beliefs because such conduct does not reflect poorly on the member’s or candidate’s professional reputation, integrity, or competence.
Example 5 (Professional Misconduct):
Meredith Rasmussen works on a buy-side trading desk of an investment management firm and concentrates on in-house trades for a hedge fund subsidiary managed by a team at the investment management firm. The hedge fund has been very successful and is marketed globally by the firm. From her experience as the trader for much of the activity of the fund, Rasmussen has become quite knowledgeable about the hedge fund’s strategy, tactics, and performance. When a distinct break in the market occurs and many of the securities involved in the hedge fund’s strategy decline markedly in value, Rasmussen observes that the reported performance of the hedge fund does not reflect this decline. In her experience, the lack of effect is a very unlikely occurrence. She approaches the head of trading about her concern and is told that she should not ask any questions and that the fund is big and successful and is not her concern. She is fairly sure something is not right, so she contacts the compliance officer, who also tells her to stay away from the issue of the hedge fund’s reporting.
Comment: Rasmussen has clearly come across an error in policies, procedures, and compliance practices within the firm’s operations. According to the firm’s procedures for reporting potentially unethical activity, she should pursue the issue by gathering some proof of her reason for doubt. Should all internal communications within the firm not satisfy her concerns, Rasmussen should consider reporting the potential unethical activity to the appropriate regulator.
See also Standard IV(A) for guidance on whistleblowing and Standard IV(C) for the duties of a supervisor.
Example 6 (Scope of Professional Activities):
(Added January 2019)
Iva Naletko is a top portfolio manager at an investment firm that specializes in the use of financial technology. She is often asked to speak at conferences based on her professional expertise. Naletko’s travel is paid for by her employer as her presentations are a positive branding exercise. She typically seeks compensation for her travels from the conference organizers. Without disclosing to her employer, Naletko keeps all funds reimbursed by the conferences for herself as a bonus for being out of the office.
Comment: Naletko is in violation of Standard I(D) for defrauding her firm of expenses reimbursed by the conference organizers.
When speaking opportunities are earned based on professional competence or as a representative of an employer, member and candidate activities would be within the scope of professional activities for CFA Institute enforcement.
Example 7 (Approved Prep Provider Program Misconduct):
(Added January 2019)
CFA4Sure is owned by Terry Macomb. The company produces test-preparation materials for CFA Program candidates and recently joined the Approved Prep Provider Program. To get approved into the program, Macomb agreed to develop a substantial portion of the business’s course content and not ask candidates to share test questions or topics with CFA4Sure after an exam.
Many candidates register for and use the company’s products. After each CFA examination, Macomb sends an e-mail to all customers thanking them for their business and wishing them success. Additionally, he asks them to share the hardest questions from the exam so that CFA4Sure can better prepare its customers for the next exam administration. Marisol Pena, a level II candidate in the CFA Program, e-mails a summary of the questions she found most difficult on the exam.
Comment: Macomb violated Standard I(D)–Misconduct which prohibits members and candidates from engaging in dishonesty, fraud, deceit, or theft in their professional activities. In this case, Macomb lied about meeting the requirements of the CFA Institute Approved Prep Provider Program. The solicitation of exam content from candidates to build a prosperous test preparation business violates this Standard.
See Also Standard VII(A), which Pena has violated for the sharing of examination content.
Example 8 (Actions of Harassment):
(Added January 2019)
Kim Vargas and Pat Anderson are working together on a project that regularly requires them to work late, after their co-workers leave the office. At first, they only discussed the project. Over time, Anderson began to ask about Vargas’ intimate personal life, particularly about attributes of an ideal partner. Although Vargas always redirected the conversation back to the project, Anderson’s remarks became more personal, including compliments about clothes and appearance.
One night, Anderson placed a hand on Vargas’ shoulder and asked about having a late dinner together. Vargas declined the invitation and asked Anderson to stop with the personal comments and physical contact. Vargas stated that the actions were disturbing and impacted their ability to complete the assignment. Initially, Anderson agreed to the request; however, Anderson soon resumed the unwanted actions. Vargas reported the interactions to the firm’s Human Resources department.
Comment: Anderson violated Standard I(D) through the harassment of a colleague. The repeated comments about Vargas and the unwelcome touching constitute harassment that is sexual in nature. Men and women can each be the target for harassment. It is not the gender, but the impact on the individual that is important in harassment situations. Members and candidates who engage in sexual or non-sexual harassing behavior undermine their professional reputation and integrity required of this Standard.
Example 9 (Actions of Harassment):
(Added January 2019)
Taylor Scott started employment as a research analyst at an investment bank. After a few weeks on the job, Scott reported his co-worker, Allison Jenson to his manager for her apparent over-use of social media during work hours. Jenson was disciplined and the entire team had to engage in additional social media usage training.
In retaliation, Scott’s co-workers, led by Jenson, decided to stop inviting him to critical meetings and intentionally excluded him from work-related emails. Jenson and other senior co-workers regularly gathered around his desk to make crude and demeaning comments about Scott in order to distract him from his job. Because he was not receiving vital information from his colleagues, the quality of Scott’s work suffered. Working against a tight deadline and unsettled by the way his co-workers were treating him, Scott made an error in a draft research report. After discovering Scott’s error, the group’s manager berated Scott publicly.
Emboldened by their boss’s tirade, Jenson openly taunted him about his job performance. Additionally, she anonymously posted profanity-laced comments about Scott’s professional incompetence on various social media sites to the detriment of Scott’s reputation.
Comment: Jenson has violated Standard I(D) through her participating in the bullying and harassment of Scott. Activities and conduct done to intentionally create a negative work environment constitute harassment which is nonsexual in nature. Jenson has engaged in such conduct both in person and online. Men and women can each be the target for harassment. It is not the gender, but the impact on the individual that is important in harassment situations. Members and candidates who engage in sexual or non-sexual harassing behavior undermine their professional reputation and integrity required of this Standard.