Although the harm to clients and the misconduct of the firm is clear, the facts and answer choices examine this case from the perspective of Olsen’s supervisory responsibility. CFA Institute Standard of Professional Conduct IV(C): Responsibilities of Supervisors requires members to make reasonable efforts to ensure that those subject to their supervision or authority comply with applicable law and ethical responsibilities. As president and CEO, Olsen has overall accountability for the conduct of the firm and is ultimately responsible for compliance with applicable legal requirements and fulfilling the firm’s ethical duties to clients. As the leader of RCS, he may delegate these responsibilities to competent and knowledgeable subordinates. Whether conduct constitutes reasonable supervision in compliance with Standard IV(C) is determined by the facts or circumstances of each particular case.
Delegation of billing functions to competent personnel alone does not absolve Olsen of his supervisory responsibility. At a minimum, Olsen should have made reasonable efforts to prevent and detect violations by ensuring the establishment of effective compliance systems. At the same time, ignoring or not properly implementing compliance policies and procedures could result in a violation of the Standard because of the failure to supervise. The occurrence of inadvertent errors may not indicate improper structure or application of billing policies and procedures but could be a red flag indicating the existence of ineffective policies or sloppy, error-prone work that should be addressed through adequate supervision. The CFA Institute Ethical Decision-Making Framework calls on those seeking to engage in ethical conduct to identify the relevant facts to determine the appropriate course of action. In this case, although the firm’s actions harmed clients and resulted in liability for regulatory violations, the facts given are insufficient to allow a definitive determination of whether the overcharging of clients was a result of inadequate supervision by Olsen. Choice B is the best answer.
This case is based on a US SEC Enforcement Action from November 2018.