*MUST HAVE CORRECT ANSWER, DETAILED EXPLAINATION AND REFERENCE TO CORRECT CODE AND STANDARD. WRONG ANSWER, INCOMPLETE ANSWER = MULTIPLE DOWNVOTE*

Trevor Blevin, a CFA candidate and a former employee of Regal Bank (Regal), recently joined Spalding Asset Management as the head of compliance. He is shocked by todays front-page business news headline: Regal Depositors Left in the Cold: Central Bank Regulator Places Bank under Statutory Management. The article mentions the reason for Regals closure was the CEOs illegal behavior, including fraud, as well as money laundering associated with a major client. The discovery occurred one month after the death of Regals CEO, Mr. James Antonio. Up until three weeks ago, Blevin headed Regals internal audit department and knew nothing of any fraud or client money laundering, despite having recently supervised a major internal audit exercise.

Wanting to get more information, Blevin calls his former colleague, Mira Chaudry, CFA. Chaudry, who works in Regals business development department, acts as the investor relations officer and headed the team for Regals recent corporate bond issue. The bond issue, approved by the central bank and the capital markets regulator, was hugely successful and oversubscribed. Chaudry tells Blevin she too was shocked by the central banks actions. Nothing seemed out of line or suspicious regarding Regals financial well-being when the team diligently prepared the bond offering documents. She reminds Blevin, that he, along with Regals compliance officer, signed off on all of the public marketing materials used for the bond issue, which included reviewing all of the extensive financial analysis undertaken. Chaudry adds, In the latest regulatory inspection, all of the anti-money-laundering and lending procedures were reviewed with no queries raised.

Regals board of directors is concerned that the newspapers headline will create panic among depositors and cause a run on Regal if it is allowed to reopen. In an attempt at damage control, the board instructs Chaudry to draft a public press release regarding the central banks investigations of fraud by the deceased CEO and the money laundering charges made against one of the banks major clients. Chaudry presents the following three draft statements to the board.

Statement 1:	Regal Bank has been placed under statutory management by the central bank as a result of illegal activity by Mr. Antonio, the deceased CEO, and Wesley Mining Corp, a major client.
Statement 2:	The central bank has placed Regal Bank under statutory management pending further investigation into alleged illegal activity by a former senior manager and a bank client.
Statement 3:	Regal Bank has been placed under statutory management by the central bank as a result of illegal activity.

During the next few days, Chaudry receives several phone calls from disgruntled financial advisers who purchased the bonds for their clients. In a heated phone conversation, one adviser, Paul Meshak, CFA, threatens to report Chaudry to CFA Institute for violating her fiduciary duty. He adds, Im going to make sure you never work in this industry again. Chaudry responds, Go ahead and report this to CFA Institute, but I didnt violate the Code of Ethics and Standards of Professional Conduct. I understand my obligations. For your information, I passed all three CFA exams, including the ethics portions, consecutively.

Meanwhile, Blevin, still reeling from the Regal Bank saga, decides to take another look at Spaldings compliance policies and procedures to ensure they are fully in line with the CFA Institute Standards of Professional Conduct. While reviewing the firms anti-money-laundering policies, he notices lapses with respect to recently implemented laws, and he is afraid the firm may already be in violation. He plans to update the existing policies as soon as possible.

After concluding his review, Blevin recommends to Spaldings board of directors changes to the firms conflicts of interest policies. Blevin is concerned the staff may not be putting clients interests ahead of their own when trading for their personal accounts. He asks for the boards endorsement of revisions in the following two policies:

Policy 1: Staff are not allowed to participate in any private placements.

Policy 2: Any client accounts that include staff as beneficiaries must trade after all other client accounts.

Spaldings business development manager asks Blevin to make a presentation to a potential pension fund client, Mokar Staff Retirement Fund. The manager informs him that the firm previously managed the Mokar account but lost it. A Mokar trustee informs him that Spalding was fired because the trustees could not understand their monthly statements and could not tell how they performed relative to other pension accounts under Spaldings management. During the presentation, Blevin states, We are in the process of updating our compliance policies, including our minimum requirements for performance presentation reporting.

Based on the information given, are Blevin and/or Chaudry most likely in violation of the CFA Institute Standards of Professional Conduct regarding their role in Regals corporate bond issuance and the subsequent statutory management of Regal Bank?