Ashraf Omar Case Scenario

CFA Level III Ethics
#1

One week prior to the IPO, Sahara’s board of directors approves and implements an employee share option plan (ESOP). Existing staff members are allocated 10% of the upcoming IPO at a 25% discount to the IPO price. Omar acquires his allocation with the intention of selling his shares at a profit after trading commences. The details of the ESOP are highlighted in the IPO prospectus.

Q. Does Omar’s participation in the ESOP most likely violate any of the Standards of Professional Conduct?

  1. No.
  2. Yes, with regard to conflicts of stock ownership.
  3. Yes, with regard to priority of transactions.

Why not priority of transactions since all shares from IPO should be allocated to clients first?

#2

Is the answer B ?

#3

It is A.

#4

Right A makes sense now that I read option B more properly. Regarding C, we don’t know if his clients have participated in the IPO. I believe choosing C would lead to us making an assumption that his clients also participated in the IPO none of which is spoken about in this scenario.

#5

“Details of the ESOP are highlighted in the prospectus.” I thought this is the clue, i.e. the clients knew that employees will buy the shares at discount, this was part of the deal already when put in front of the clients.