55

Standard I(D) Misconduct 

 

Members and Candidates must not engage in any professional conduct

involving dishonesty, fraud, or deceit or commit any act that reflects
adversely on their professional reputation, integrity, or competence.
 

Guidance 
Whereas Standard I(A) addresses the obligation of members and candidates to
comply with applicable law that governs their professional activities, Standard
I(D) addresses all conduct that reflects poorly on the professional integrity, good
reputation, or competence of members and candidates. Any act that involves
lying, cheating, stealing, or other dishonest conduct is a violation of this standard
if the offense reflects adversely on a member’s or candidate’s professional activi-
ties. Although CFA Institute discourages any sort of unethical behavior by mem-
bers and candidates, the Code and Standards are primarily aimed at conduct and
actions related to a member’s or candidate’s professional life.
Conduct that damages trustworthiness or competence may include behavior
that, although not illegal, nevertheless negatively affects a member’s or candidate’s
ability to perform his or her responsibilities. For example, abusing alcohol dur-
ing business hours might constitute a violation of this standard because it could
have a detrimental effect on the member’s or candidate’s ability to fulfill his or her
professional responsibilities. Personal bankruptcy may not reflect on the integrity
or trustworthiness of the person declaring bankruptcy, but if the circumstances of
the bankruptcy involve fraudulent or deceitful business conduct, the bankruptcy
may be a violation of this standard.
In some cases, the absence of appropriate conduct or the lack of sufficient
effort may be a violation of Standard I(D). The integrity of the investment profes-
sion is built on trust. A member or candidate—whether an investment banker,
rating or research analyst, or portfolio manager—is expected to conduct the nec-
essary due diligence to properly understand the nature and risks of an investment
before making an investment recommendation. By not taking these steps and,
instead, relying on someone else in the process to perform them, members or can-
didates may violate the trust their clients have placed in them. This loss of trust
may have a significant impact on the reputation of the member or candidate and
the operations of the financial market as a whole.
Individuals may attempt to abuse the CFA Institute Professional Conduct
Program by actively seeking CFA Institute enforcement of the Code and Standards,
and Standard I(D) in particular, as a method of settling personal, political, or other
disputes unrelated to professional ethics. CFA Institute is aware of this issue, and
appropriate disciplinary policies, procedures, and enforcement mechanisms are in

 ©2014 CFA INSTITUTE

56  |  Professionalism

place to address misuse of the Code and Standards and the Professional Conduct
Program in this way.

Recommended Procedures for Compliance 

In addition to ensuring that their own behavior is consistent with Standard I(D), to
prevent general misconduct, members and candidates should encourage their firms to
adopt the following policies and procedures to support the principles of Standard I(D):
●● Code of ethics: Develop and/or adopt a code of ethics to which every employee
must subscribe, and make clear that any personal behavior that reflects poorly
on the individual involved, the institution as a whole, or the investment indus-
try will not be tolerated.
●● List of violations: Disseminate to all employees a list of potential violations and
associated disciplinary sanctions, up to and including dismissal from the firm.
●● Employee references: Check references of potential employees to ensure that
they are of good character and not ineligible to work in the investment indus-
try because of past infractions of the law.

Application of the Standard 

Example 1 (Professionalism and Competence):
Simon Sasserman is a trust investment officer at a bank in a small affluent town.
He enjoys lunching every day with friends at the country club, where his clients
have observed him having numerous drinks. Back at work after lunch, he clearly
is intoxicated while making investment decisions. His colleagues make a point of
handling any business with Sasserman in the morning because they distrust his
judgment after lunch.
Comment: Sasserman’s excessive drinking at lunch and subsequent
intoxication at work constitute a violation of Standard I(D) because this
conduct has raised questions about his professionalism and competence.
His behavior reflects poorly on him, his employer, and the investment
industry.

Example 2 (Fraud and Deceit): 

Howard Hoffman, a security analyst at ATZ Brothers, Inc., a large brokerage
house, submits reimbursement forms over a two-year period to ATZ’s self-funded
health insurance program for more than two dozen bills, most of which have
been altered to increase the amount due. An investigation by the firm’s director of
employee benefits uncovers the inappropriate conduct. ATZ subsequently termi-
nates Hoffman’s employment and notifies CFA Institute.

©2014 CFA INSTITUTE

 Standard I(D)  |  57

Comment: Hoffman violated Standard I(D) because he engaged in inten-

tional conduct involving fraud and deceit in the workplace that adversely
reflected on his integrity.

Example 3 (Fraud and Deceit): 

Jody Brink, an analyst covering the automotive industry, volunteers much of her
spare time to local charities. The board of one of the charitable institutions decides
to buy five new vans to deliver hot lunches to low-income elderly people. Brink
offers to donate her time to handle purchasing agreements. To pay a long-standing
debt to a friend who operates an automobile dealership—and to compensate herself
for her trouble—she agrees to a price 20% higher than normal and splits the sur-
charge with her friend. The director of the charity ultimately discovers the scheme
and tells Brink that her services, donated or otherwise, are no longer required.
Comment: Brink engaged in conduct involving dishonesty, fraud, and
misrepresentation and has violated Standard I(D).

Example 4 (Personal Actions and Integrity): 

Carmen Garcia manages a mutual fund dedicated to socially responsible investing.
She is also an environmental activist. As the result of her participation in nonvio-
lent protests, Garcia has been arrested on numerous occasions for trespassing on the
property of a large petrochemical plant that is accused of damaging the environment.
Comment: Generally, Standard I(D) is not meant to cover legal trans-
gressions resulting from acts of civil disobedience in support of personal
beliefs because such conduct does not reflect poorly on the member’s or
candidate’s professional reputation, integrity, or competence.

Example 5 (Professional Misconduct): 

Meredith Rasmussen works on a buy-side trading desk of an investment management
firm and concentrates on in-house trades for a hedge fund subsidiary managed by a
team at the investment management firm. The hedge fund has been very successful
and is marketed globally by the firm. From her experience as the trader for much of
the activity of the fund, Rasmussen has become quite knowledgeable about the hedge
fund’s strategy, tactics, and performance. When a distinct break in the market occurs
and many of the securities involved in the hedge fund’s strategy decline markedly in
value, Rasmussen observes that the reported performance of the hedge fund does not
reflect this decline. In her experience, the lack of effect is a very unlikely occurrence.
She approaches the head of trading about her concern and is told that she should not
ask any questions and that the fund is big and successful and is not her concern. She
is fairly sure something is not right, so she contacts the compliance officer, who also
tells her to stay away from the issue of the hedge fund’s reporting.

 ©2014 CFA INSTITUTE

58  |  Professionalism

Comment: Rasmussen has clearly come across an error in policies, proce-

dures, and compliance practices within the firm’s operations. According
to the firm’s procedures for reporting potentially unethical activity, she
should pursue the issue by gathering some proof of her reason for doubt.
Should all internal communications within the firm not satisfy her con-
cerns, Rasmussen should consider reporting the potential unethical
activity to the appropriate regulator.
See also Standard IV(A) for guidance on whistleblowing and Standard
IV(C) for the duties of a supervisor.

©2014 CFA INSTITUTE