Emmy Noether is a senior division manager at Harding & Harding, a money management firm. Emmy is quite fastidious about following the rules of the investment industry and has established specific procedures and guidelines designed to prevent any violations. Recently, it surfaced that one of the employees reporting to Emmy, William Bathwater, had been secretly using inside information on a computer maker to generate profits in his portfolio. William had been extremely clever at hiding these profits and only a serendipitous audit by the Compliance Department revealed the pattern.

Emmy Noether is a senior division manager at Harding & Harding, a money management firm. Emmy is quite fastidious about following the rules of the investment industry and has established specific procedures and guidelines designed to prevent any violations. Recently, it surfaced that one of the employees reporting to Emmy, William Bathwater, had been secretly using inside information on a computer maker to generate profits in his portfolio. William had been extremely clever at hiding these profits and only a serendipitous audit by the Compliance Department revealed the pattern.

Emmy, in her capacity as William’s supervisor, has:
A . has not violated any standard in the AIMR code of ethics.
B . none of these answers.
C . violated Standard III (E) – Responsibilities of Supervisors – by failing to check William’s behavior.
D . violated Standard III (B) – Duty to the Employer – by failing to check William’s behavior.

View Answer

Answer: A

Explanation:

Under Standard III (E) – Responsibilities of Supervisors, members must take reasonable care to ensure that their subordinates do not violate any laws or the code of conduct. This includes designing effective procedures to deter fraudulent activity.

However, no amount of scrutiny can prevent the cleverest of frauds.

What is expected of the members is that they be diligent enough in carrying out their duties. In the present case, given the facts, Emmy cannot be faulted for William’s criminal activity since she hasn’t been found to be negligent in any way. Hence, she has not violated Standard III (E) – Responsibilities of Supervisors nor any other standards.