Bolton, a hedge fund manager oversees a hedge fund which explore investment prospects in developing markets. Bolton utilizes assets of the funds investors. Next, the fund hires local firms to serve as sub-consultants to secure promising investment opportunities based on the local laws and regulation. The sub-consultants, however, have very inadequate experience as financial/investment advisers. On the other hand, these sub-consultants have close relationships and networks with local high-ranking government officials. The payments made by Bolton, through the sub-consultant, normally includes considerable amount of deal fees and other expenses which enable governmental support for each of the investment. Bolton does not need the local partners to provide details of their activities or specific expenses that are covered by the fees. Bolton reports these expenditures to fund investors as operating expenses that contribute to the success of the investment. Over several years, the hedge fund is very successful producing an 16% yearly rate of return for its investors.

Required:

Based on the above scenario, comment and discuss whether Boltons actions violate the CFA Institute Code of Ethics and Standards of Professional Conduct based on CFA Standards of Practice Handbook. (10 marks)