This case relates to conflicts of interest and disclosure of referral fees. CFA Institute Standard VI(C): Disclosure of Conflicts – Referral Fees requires CFA Institute members to disclose any compensation, consideration, or benefit received from others for the recommendation of products and services. As a professional boxer, it is unlikely that Juniper is a CFA® charterholder subject to the CFA Institute Standards of Professional Conduct. Neither could Juniper arguably be seen as an investment professional (nor his social media followers as investment “clients”) subject to the general ethical principles or suitability requirements applicable to investment advisers.
But although celebrities often capitalize on their fame by making product endorsements, the STAR tokens, as investment contracts, are regulated by the US SEC pursuant to the US Securities Act. Section 17(b) of the US Securities Act makes it unlawful for any person to “publish, give publicity to . . . (or) circulate any communication which, though not purporting to offer a security for sale, describes such security” in return for payment from an issuer, underwriter, or dealer, “without fully disclosing the receipt . . . of such (payment) and the amount thereof.” This provision of US securities law is applicable regardless of the sophistication of the audience for the communication and has the same effect as Standard VI(C) in that it requires disclosure of payments for touting the security. Therefore, Juniper’s actions are inappropriate and a violation of US securities laws because he failed to make the proper disclosure. (If Juniper was a charterholder, his actions would have violated Standard VI(C) as well). Answer C is the best choice.
This case is based on a US SEC Enforcement Action on 29 November 2018.