John's Ethical Dilemma Regarding IPO Investment

Very Hard Professional Standards Application Conflicts Of Interest

John is a portfolio manager at a reputable investment firm. He recently learned that his best friend, Alice, is the CFO of a company that is about to go public. John’s firm is considering investing in the IPO, and Alice has confidential information about the company that could significantly influence its stock valuation.

John faces a dilemma: he wants to support his friend but also seeks to uphold his professional integrity and fiduciary duty to his firm’s clients. Moreover, John had previously agreed to abide by the CFA Institute's Code of Ethics and Standards of Professional Conduct, which requires him to avoid situations that create conflicts of interest.

The firm has a policy that mandates disclosure of any potential conflicts of interest. Given this background, which of the following actions should John take to navigate this situation ethically?

Selects not to invest in the IPO and keeps his relationship with Alice confidential without disclosing any information to his firm.

Informs his employer about his friendship with Alice and the potential IPO, and abstains from making decisions regarding the investment.

Proceeds with advising his firm to enter the IPO, citing his friendship to justify the investment.

Hint

Submitted13.3K

Correct11.3K

% Correct85%