A member misstates the nature of a fund's investment strategy in a prospectus.

• A. Standard I.C Misrepresentation
• B. Standard VI.B Priority of Transactions
• C. Code of Ethics and Standards
• D. Standard V.B Communication with Clients and Prospective Clients

Answer: (A)

Misrepresentation is the act of presenting false or misleading information, or omitting material facts, in a way that investors rely on. A fund’s prospectus is a formal document that investors use to understand the fund’s investment strategy, objectives, and risks. When the strategy is misstated, it misleads investors about what the fund actually does, which violates the obligation to provide accurate, complete information. Under CFA Institute Standards, misrepresentation is prohibited, making this scenario a clear breach of Standard I(C).

The other standards address different issues. Priority of Transactions relates to fair handling and timing of trades rather than factual accuracy in a fund’s disclosures. The Code of Ethics and Standards covers overarching professional conduct, which is too broad to pinpoint the specific misrepresentation in a prospectus. Communication with Clients and Prospective Clients governs how information is communicated to clients, but misrepresenting a prospectus is a broader, more fundamental issue of accuracy and truth in disclosure, captured by misrepresentation.