Ethics Case Study of the Week: It Was Only a Temporary Volunteer Role

By Gary Sarkissian posted 09-27-2021 08:00

CFA Institute’s Code of Ethics and Standards of Professional Conduct codify the ethical guidelines for the investment profession that are critical to maintaining the integrity of capital markets and investor trust.  Members, candidates, and even firms make a commitment to uphold these standards as they help elevate ethical decision-making universally around the globe. 

As investment professionals, we face important ethical decisions in our day-to-day activities.  Some scenarios we encounter will be straightforward, while others may be more complex.  No matter the circumstances, continuous learning remains imperative in an investment industry that continues to evolve with products undergoing innovation and an adapting regulatory environment.

For that reason, each week we feature a sample case from CFA Institute’s Ethics in Practice Casebook.  Many cases are built upon real-life examples that may involve a regulatory matter or even a CFA Institute Professional Conduct investigation.  At the end of each case is a multiple-choice question that addresses the ethical nature of the actions taken in that case. 

This week’s case involves Standards I(A) Knowledge of the Law, IV(A) Loyalty, VI(A) Disclosure of Conflicts, and VII(A) Conduct as Participants in CFA Institute Programs.

It Was Only a Temporary Volunteer Role
Gordon is an investment representative at Wallsend Financial Services, a mutual fund dealer. Wallsend requires its employees to disclose outside business activity for review and approval by the firm. While working for Wallsend, Gordon serves as a director on four outside boards. Gordon gets approval from Wallsend for three of the boards positions, but the fourth is for a charity called Born in the 50s to help homeless children that is run by his father. Gordon does not submit the position for approval because it is a volunteer role that he has taken only temporarily to help his father. Wallsend eventually discovers Gordon’s service on the Born in the 50s board. Wallsend is in the process of reducing their workforce, and after confirming that Gordon failed to disclose his involvement on the additional board, they terminate him for violation of their policy. Now unemployed, Gordon receives his Professional Conduct Statement (PCS) from CFA Institute. Is Gordon required to disclose the internal investigation by Wallsend concerning his nondisclosed service as a director on the Born in the 50s board?

  A. No, it was an internal matter at Wallsend, and no client was involved.
  B. No, Gordon was a volunteer and his firing was unjustified and likely driven by Wallsend’s workforce reduction motive.
  C. No, this was not a question of Gordon’s professional conduct or activities.
  D. Yes, Gordon should disclose this matter on his PCS.

Gordon ultimately decides not to disclose the matter to CFA Institute because he believes he was wrongfully terminated. But he receives a notice of investigation from the regulator concerning his violation of Wallsend’s internal policy. Gordon decides to just settle with the regulator. He receives a one-month suspension and a fine for violating the rules pertaining to outside business activity. CFA Institute discovers Gordon’s settlement with the regulator through its monitoring efforts and initiates its own investigation. As a CFA charterholder, Gordon is required to cooperate in the Professional Conduct investigation, but Gordon wants to resign his membership to avoid the CFA Institute investigation.

  A. Even if Gordon resigns, he was a member and charterholder at the time of the conduct and thus CFA Institute has jurisdiction over him.
  B. If Gordon refuses to cooperate, CFA Institute can impose a Summary Suspension followed by a Revocation of Gordon’s CFA® charter.
  C. If Gordon cooperates with the Professional Conduct investigation, he will be able to tell his side of the story and contribute evidence in support of his position.
  D. All of the above apply.

What do you think is the correct choice?  Click the “Analysis” button below to see the analysis for this case, and feel free to discuss in the comments below.  The completion of this case qualifies for 0.25 hour of Standards, Ethics, and Regulation (SER) credit

This case addresses issues related to the disclosure, investigation, and sanctioning of member misconduct by the Professional Conduct division of CFA Institute. Regarding whether Gordon must disclose Wallsend’s internal investigation on his PCS, the correct answer is yes, thus in the first set of multiple-choice answers, choice D is the right decision. Choice A is incorrect because even if it was an internal matter at Wallsend and no client was harmed, the PCS contains six questions and the second question requires a yes response if you have you been “the subject of any investigation (internal or external) in which your professional conduct or activities were questioned or at issue.” Choice B is also incorrect because the issue is not whether Gordon was justified in his actions or whether his employer had an ulterior motive, the issue is whether there was in fact an internal investigation by his employer involving his professional conduct or activities. And “C” is incorrect because although Gordon may disagree that the temporary volunteer work for his father constitutes a professional activity that needs to be reported, his employer obviously thought it was an activity that needed to be reported. Therefore, the Wallsend investigation needed to be disclosed regardless of its merits

Regarding the second set of multiple-choice answers, choice D is again the right decision because this time, answers A, B, and C are all true. Under the CFA Institute Rules of Procedure, CFA Institute has jurisdiction over Gordon because he was a member and a charterholder at the time of the conduct. If Gordon refuses to cooperate, CFA Institute will proceed with a Summary Suspension, which will lead to a printed Notice of Disciplinary Action followed by a Revocation. Finally, if Gordon cooperates with the Professional Conduct investigation, he will be able to tell his side of the story and contribute evidence in support of his position.

This scenario is based on a real case handled by the Professional Conduct division at CFA Institute. A Disciplinary Review Committee found that the member violated the following Standards: I(A): Knowledge of the Law, IV(A): Loyalty, and VI(A): Disclosure of Conflicts. The member in the actual case did in fact disclose the matter on the PCS and in a timely manner. Therefore, there was no violation of Standard VII(A): Conduct as Participants in CFA Institute Programs, which makes it a violation to misrepresent information on a PCS.

Image by Gerd Altmann from Pixabay

© 2019 CFA Institute. All rights reserved. You may copy and distribute this content, without modification and for non-commercial purposes, provided you attribute the content to CFA Institute and retain this copyright notice.  This case was written as a basis for discussion and is not prescriptive of how a business situation or professional conduct matter should or should not be handled or addressed. Certain characters mentioned are fictional to facilitate discussion, and any resemblance to actual persons is coincidental.