This case is related to misrepresentation. CFA Institute Standard of Professional Conduct I(C) prohibits CFA Institute members from making any misrepresentations relating to investments. Although the underlying securities purchased by the joint venture may be guaranteed by the local government, clients are buying shares of the joint venture, which are not “government-backed” investments. Also, the claim that the securities are “government backed” does not specify the government involved, potentially implying that it is the US government (which is very likely more creditworthy than the local government). It is not necessarily unethical to market investments as having subjective and tangential religious benefits to potential investors that have a particular interest in achieving those goals. For instance, promoting and selling socially responsible investments to those seeking to invest in assets that advance social or environmental goals is a valid and established investment practice. In this case, although Henderson has diligently investigated the investments and the securities themselves may be suitable for clients, these facts would not remedy or supersede the misrepresentations about the shares of the joint venture being “government backed” that mislead investors about the characteristics or merits of the investment. Choice C is the best response.
This case is based on a US SEC enforcement action from September 2019.