Note ( please link all the problems and recommendations with the standards I have mentioned in the

documents ) You can do role-play of LIM, KIM, and Jennifer

Points

To me, it’s a case of unethical conduct

 You can make the framework what unethical been done and what should be done
 Recommendation s should be there
 Differentiate legal and ethical issues

Problems:
STANDARDS OF PROFESSIONAL CONDUCT were not maintained at Walabi
 On the behalf of walabi Lim, Tailor and Andy ( walabi Employees ) shared a report
Taylor: Andy, your “strong buy” recommendations on AUG and OUP made their senior
management very happy and should increase demand for their shares.
 They recommended higher-than-expected oil and gas prices as a result of stronger economic
growth and demand. As per your instructions, Jennifer, did not disclose that AUG and OUP are
clients of Walabi to preserve their confidentiality. And also did not disclose that AUG recently
hired my daughter as a chemical engineer because she is not a shareholder in the company, and
she is not involved in its financial operations
 Took Mike Smith is currently a senior portfolio manager onboard employee of Alpha Asset
Management (AAM), a competitor of Walabi by giving them 50% bonus and handsome salary for
taking AAM clients and employees to walabi
As at AAM they do not have those policies or procedures at Walabi. Butso he allowed the
portfolio managers to participate in oversubscribed IPOs as a reward for all their hard work. By
the way, if you sign our employment contract today, Walabi will pay you a “signing bonus” equal
to 50% of your current salary
 As per Walabi’s policy, Lim allocates a portion of SS’s shares to Smith and her other portfolio
managers, who then purchase shares in their personal accounts
 Australia Gas (AUG), Outback Petroleum (OUP), and State Shale (SS),( request manipulation of
report to walabi to get exploration contracts and their share prices increased by almost 50%.
By announcing this
( took contract and facilitate Walabi employees as well as Both companies told me that they are
planning secondary equity offerings and will hire Walabi to be the lead underwriter if we issue
favorable research recommendations. Then, I want you to begin analyzing SS. SS is planning a
large IPO next month and wants us to issue a positive research report on the company
immediately after the offering to boost the price of its shares.
 Government Official also involved (in misconduct and ethical issues )
The Minister shared with me confidential data on their state’s crude oil and natural gas reserves,
and his plans to allow companies to bid on exploration and drilling licenses. But when I met with
senior management from AUG and OUP, they told me that the Minister had already decided to
award them the exploration and drilling licenses. As a result, AUG and OUP are in the process of
 forming joint ventures with two large multinational oil and gas companies. But please be aware
that none of this information will be announced until after their secondary equity offerings.
 Lim: When I met with the Minister and his team, they asked me to open investment accounts at
Walabi in the names of their wives and children because they plan to have AUG and OUP make
payments into these accounts in exchange for awarding them the exploration and drilling
licenses.
SMITH Misconduct before leaving AAM
On his last day at AAM, Smith makes digital copies of the following materials to take with him to
Walabi: • Marketing presentations containing his performance record • Spreadsheet models
containing stock selections for the portfolios he manages • News articles that contain potential
research ideas • A list of companies and their corporate website links that he would like to
research further

Smith :Duties to Employers

LIM : Conducted un ethical conduct

Duties to Clients ( clients are breaching their duties)

MARKET MANIPULATION
I. Conflicts of Interest (government officials)

Should be applied in this case

Standard 1 (B) Independence and Objectivity Members and Candidates must use reasonable care and
judgment to achieve and maintain independence and objectivity in their professional activities.
Members and Candidates must not offer, solicit, or accept any gift, benefit, compensation, or
consideration that reasonably could be expected to compromise their own or another’s independence
and objectivity (Applied to government officials )

Standard 1 (C) Misrepresentation Members and Candidates must not knowingly make any
misrepresentations relating to investment analysis, recommendations, actions, or other professional
activities. A misrepresentation is an untrue statement, or omission of fact, or any statement that is
otherwise false or misleading.

Standard 1 (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. ( walabi and MIKe did it)

Standard II (A) Material Nonpublic Information Members and Candidates who possess material
nonpublic information that could affect the value of an investment must not act or cause others to act
on the information ( AUG,OUP and SS did this)

Standard III (A) Loyalty, Prudence, and Care Members and Candidates have a duty of loyalty to their
clients and must act with reasonable care and exercise prudent judgment. Members and Candidates
must act for the benefit of their clients and place their clients’ interests before their employer’s or their
own interests. ( Mike DID this)
Standard IV (A) Loyalty In matters related to their employment, Members and Candidates must act for
the benefit of their employer and not deprive their employer of the advantage of their (Mike DID this)

Recommendations

In the code of ethics, the following points are related

 Place the integrity of the investment profession and the interests of clients above their own
interests.

 Recommended Procedures for Compliance • Factual Presentations should be done

 Recommended Procedures for Compliance • Code of ethics • List of violations • Employee
references should be done
 Adopt Disclosure Procedure (should be done)
 • Develop Firm Policies • Limit the number of people involved • Shorten the time frame
between decision and dissemination
 PRESERVATION OF CONFIDENTIALITY< Recommended Procedures for Compliance • The
simplest, most conservative, and most effective way to comply with Standard III(E) is to avoid
disclosing any information received from a client except to authorized fellow employees who
are also working for the client
 LOYALTY: In matters related to their employment, Members and Candidates must act for the
benefit of their employer and not deprive their employer of the advantage of their skills and
abilities, divulge confidential information, or otherwise cause harm to their employer.
 Additional Compensation Arrangements Members and Candidates must not accept gifts,
benefits, compensation, or consideration that competes with or might reasonably be expected
to create a conflict of interest with their employer’s interest unless they obtain written consent
from all parties involved.

What employer should do ?

Establish an Appropriate Incentive Structure