Question

Anderb, a portfolio manager for XYZ Investment Management Company–a registered investment organization that advises investment firms and private accounts–was promoted to that position three years ago. Bates, her supervisor, is responsible for reviewing Anderb's portfolio account transactions and her required monthly reports of personal stock transactions. Anderb has been using Jonelli, a broker, almost exclusively for brokerage transactions for the portfolio account. For securities in which Jonelli's firm makes a market, Jonelli has been giving Anderb lower prices for personal purchases and higher prices for personal sales than Jonelli gives to Anderb's portfolio accounts and other investors. Anderb has been filing monthly reports with Bates only for those months in which she has no personal transactions, which is about every fourth month. Which of the following is most likely to be a violation of the Code and Standards?

1) Anderb using Jonelli exclusively for brokerage transactions
2) Jonelli giving Anderb lower prices for personal purchases
3) Jonelli giving Anderb higher prices for personal sales
4) Anderb filing monthly reports only for months with no personal transactions

Answer 1

The violation is Jonelli giving Anderb higher prices for personal sales.

Step-by-step explanation:

The most likely violation of the Code and Standards is option 3) Jonelli giving Anderb higher prices for personal sales.

According to the information given, Anderb has been receiving preferential treatment from Jonelli, where she is given lower prices for personal purchases and higher prices for personal sales compared to the prices given to Anderb's portfolio accounts and other investors. This conduct is a violation of the principle of fair dealing and loyalty to clients, which requires investment professionals to treat all clients fairly and not prioritize their personal interests.

Anderb's exclusive use of Jonelli for brokerage transactions (option 1) may raise concerns about potential conflicts of interest, but it is not explicitly mentioned as a violation in the given information. Filing monthly reports only for months with no personal transactions (option 4) may demonstrate a lack of transparency, but it is not a violation in itself.