The First National Bank of Credit (FNBC) has an investment division that manages Bud's Brewery Corp. (BBC) Pension Plan.

Bud's Brewery Corp (BBC) is currently in a hostile takeover bid by JP Holdings Inc. a large multinational holding company. JP Holdings' management believes it can buy BBC company at a low price when the market is depressed, trim some costs, especially at the senior management level, and generate higher profits. Their plan is then to sell the company at a profit.

Sammy Snead, CFA, is an investment manager with the First National Bank's Investment Division. He has been under some pressure from management to generate more fees for his firm.

Emma Mullins, is the President of Bud's Brewery (BBC), does not want the take over to occur and is strongly against it. She comes up with a strategy to prevent the takeover. She approaches Sammy Snead discreetly, and suggests to him, that in exchange for the promise of additional business from BBC that Snead should buy a large block of BBC stock for the pension funds that he manages.

Snead, has analyzed BBC and feels that BBC is overvalued. Normally he would not be buying the stock for the pension's portfolio. However, he agrees to purchase a large block of BBC stock on condition that he receives other BBC's corporate accounts to manage. He feels that he can sell the stock at a later date, make a profit for the Pension Fund while at the same time realize additional fees for his bank. Furthermore, since his compensation is based on assets under management he will stand to benefit personally.

The large block of shares purchased for the pension fund results in the price of BBC's stock to increase significantly to the point where JP Holdings retracts its offer to buy the company. (Total 24 Marks)

a) Describe two things (or actions) that are unethical in this case. (4 Marks)

b) State and explain what CFA Standard(s) of Practice that are being contravened. (4 Marks)

c) If you were in Sammy Snead's position how would you respond to Emma's proposal, if you were approached. In one or two sentences write down exactly what you would say and what you would do as a result. (6 Marks)

d) In point form, outline what Sammy did correctly as far as ethical behaviour is concerned (5 Marks)

e) Is there a scenario where it would have been appropriate for Sammy to buy shares of BBC? (5 Marks)