B. Don't participate or assist in violations.

Don't knowingly break or help others break laws. If a member:

• Feels that a standard or law has been violated (e.g., receiving information contradictory to a registration statement), he or she should seek the advice of the firm's counsel. If the member believes that the counsel is both competent and unbiased and he or she follows the counsel's advice, there is no violation.
• Knows that a standard or law has been violated (e.g., discovering that a client has knowingly misstated information on a prospectus), he or she should report the incident to the appropriate supervisory person in the firm. If the situation is not remedied, the member should disassociate from the situation. He or she may also seek legal advice to see if other actions should be taken.

Note:

• Members are not required by the Code and Standards to report violations to the appropriate governmental or regulatory organizations. However, if the law requires an individual to report, he or she must do so.
• Members are encouraged, but not required, to report violations to CFA Institute.

Example

An associate of yours is engaging in illegal trading practices and he tells you to refrain from disclosing this because it will make the firm look bad and it is highly profitable. You should choose one of the three actions above. If you seek legal counsel and are told that the activity is actually not illegal, you have met your obligation. This assumes that you believe the legal counsel to be competent. If you report your associate's activity to your supervisor and are told to ignore it, you should take steps to disassociate yourself from the practice.