Jonathan owns Bright Sky Financial Services, Inc. (Bright Sky). He holds a controlling interest in the company. Jonathan manages seven mutual funds for approximately 150 high-wealth clients. Jonathan is a registered broker and Bright Sky is registered with the Securities and Exchange Commission. In total, the funds have a market value of just over \($500\) million. Jonathan’s clients are very pleased with his handling of the funds, for the average investor receives a return of about 20 percent per year. Jonathan is highly regarded in his local community; he is known as a person who donates large sums of money to charitable organizations. Jonathan is also president of the local chapter of a financial planning organization. Recently, he published a popular book about successful investment strategies, and he is a regular speaker at regional and national conferences.

About three months ago, the Internal Revenue Service began an audit of Jonathan’s personal tax return and the tax return of Bright Sky. During the course of the audit, the revenue agent discovered a discrepancy between the actual fund balance in one of Bright Sky’s mutual funds and the reported balance on Bright Sky’s tax return. The actual fund balance was \($140,000\) less than the amount reported on Bright Sky’s tax return. Upon further inquiry, the revenue agent discovered that Jonathan had made seven wire transfers of \($20,000\) each from the fund in question to reported the \($140,000\) as dividend income on his personal tax return. However, the minutes of Bright Sky’s board of directors’ meetings did not indicate that any dividends had been declared.
Furthermore, the reports filed with the Securities and Exchange Commission reported a fund balance that was \($140,000\) higher than the actual fund balance.
Discussion Questions

a. Based on the above facts, has Jonathan violated any of the provisions of the Securities Act of 1933, the Securities Exchange Act of 1934, or the Sarbanes-Oxley Act of 2002? Explain.

b. Based on the above facts, do you believe Jonathan has acted ethically in his dealings with his clients or the SEC? Explain.