Ethics in Practice: Exchange Listing

Category: Ethics

Country or region: Asia Pacific (Overall)

If the headline above sparked your interest, you are one of the thousands of honest, ethical, and well-meaning investment professionals who want to do the right thing when it comes to fulfilling your professional responsibilities. But sometimes the proper course of action is not always straightforward and obvious. To help with those situations, CFA Institute provides guidance through its Code of Ethics and Standards of Professional Conduct (Code and Standards) as well as an Ethical Decision-Making Framework. But just as you need to practice to become proficient at playing a musical instrument, public speaking, or playing a sport, practicing assessing and analyzing situations and making ethical decisions develops your ethical decision-making skills. To promote “ethical exercise,” we are excited to introduce Ethics in Practice.
Each week, we will post a short vignette, drawn from real-world circumstances, regulatory cases, and CFA Institute Professional Conduct investigations, along with possible responses/actions (see below). Later in the week, we will post an analysis of the case and you can see how your response compares! Stay tuned!

We then encourage you to assess the case through the lens of the Ethical Decision-Making Framework and the Code and Standards and let us know which of the choices you believe is the right thing to do and why by using the comment field below.

CASE (Week 56)
Ackerman is a securities contractor working to assist Superior Western Energy (SWE) list its shares on the Australian Security Exchange (ASX). SWE filed a prospectus for an offer of up to five million shares at $2 each to raise $10 million. The ASX listing rule applicable at the time required that entities seeking admission to the ASX must meet a “minimum spread requirement” of at least 300 shareholders with a minimum value holding to qualify for listing on the exchange. In their listing application, representatives of SWE informed ASX that the minimum spread requirement of 300 shareholders had been met. These disclosures included as shareholders 31 people or companies arranged by Ackerman. But none of the supposed shareholders were genuine buyers of SWE securities; Ackerman had provided false names and addresses for the investors. The SWE share offer raised more than $3.5 million, with more than 1.75 million shares being issued. SWE was admitted to the official list of the ASX, and its shares were quoted on that exchange. Over time, the price of SWE shares steadily increased, the company attracted hundreds of investors and shareholders, and early investors achieved an excellent investment return. Ackerman’s actions were

A. unacceptable.
B. acceptable because SWE proved to be a strong company with excellent performance.
C. acceptable because no investors were harmed by a technical violation of ASX rules.
D. acceptable if SWE would have met the minimum spread requirement without the 31 fictitious investors claimed by Ackerman. 

This case relates to CFA Institute Standard of Professional Conduct II(B): Market Manipulation, which prohibits CFA Institute members from engaging in practices that artificially inflate trading volume to mislead market participants. In this case, Ackerman engaged in information-based manipulation by falsely inflating the number of initial investors in the SWE securities. According to the Australian Securities and Investments Commission, the purpose of the minimum requirements for securities to be listed on the ASX is to demonstrate that there is sufficient investor interest in the company to justify its listing. This operates to ensure some level of liquidity at the time the company is initially listed and keeps poorer quality applicants that are not able to attract sufficient investor interest to meet the minimum spread requirement from being admitted to the ASX official list.
Falsifying the number of initial investors, therefore, goes beyond a technical violation of ASX rules and has substantive consequences. The fact that SWE ultimately proved to be a bona fide and solid investment does not mitigate Ackerman’s conduct. Even if SWE met the minimum spread requirement without the 31 invented investors, Ackerman’s misrepresentations still falsely pumped up the initial interest in SWE securities to circumvent regulatory requirements and drive interest in the investment. Choice A is the best answer.

This case is based on a 22 October 2018 Enforceable Undertaking by the Australian Securities and Investments Commission.

Have an idea for a case for us to feature? Send it to us at

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