3.) In Statement 2, CleanTech most likely violated which of the following Standards of
Professional Conduct?
A. Material Nonpublic Information
B. Suitability
C. Misrepresentation
Answer = A
"Guidance for Standards I–VII," CFA Institute
Standard II(A): Material Nonpublic Information; Standard I(C): Misrepresentation
Standard II(A): Material Nonpublic Information has been violated by the board member
who shared material nonpublic information with the hedge fund and by the fund
because it acted on the information. Standard III(C): Suitability does not appear to have
been violated because the fund is characterized as a high-risk investment, and it is
clearly stated that EnergyAlgae is also a high-risk investment. CleanTech's statement
that the hedge fund benefited from the increase in share value for EnergyAlgae last year
is a violation of Standard I (C): Misrepresentation because the fund had only recently
invested in the stock, so it did not benefit from the large move in the stock's price.
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