WEBVTT

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Narrator: Craig, an advisory manager, has a brokerage account 

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with a broker who gives him specific investment 

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recommendations from time to time. His account has been activated 

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for KICS Broker Import and Craig has established protocols 

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with the broker, first, to use the external link to KICS to check whether the

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securities he is recommending are restricted, and second, to call Craig 

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to get approval to make the trades. A few days ago, the broker 

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reached out to him with some potential investment recommendations

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and said the timing was perfect to buy the securities that day. The broker

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told Craig that he searched KICS and could not find any of the

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investments. Craig weighed his options. He could do more research to

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determine whether each of the investments were permissible, or he could

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rely on the broker’s research and take advantage of whatever

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was happening in the was happening in the market that day. Not

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wanting to miss out on the potential financial gain, and rationalizing

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that he only planned to hold the investments for a short

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timeframe, Craig gave his broker the go-ahead to make the purchases. Now

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he’s received an email from Risk Management – Independence notifying

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him that the investments were in restricted entities. He instructs his

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broker to sell the restricted entities immediately. He reaches

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out to Risk Management - Independence to discuss.

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Craig: A few days ago, my broker purchased a few stocks on my behalf

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and now I’m receiving an email that they’re restricted. I had the

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broker sell them right away. Do I have any issues?

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Independence: Before purchasing them, did you check the

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restriction status in KICS?

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Craig: No, I didn’t check personally, but my broker said he checked

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on my behalf and and didn’t find anything in KICS. I gave him the

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go-ahead to purchase them because he advised I needed to act

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fast and I figured they must not have been restricted if they

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weren’t in KICS.

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Independence: Not finding an entity in KICS doesn’t necessarily mean

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it’s not restricted. You’re required to obtain conclusive evidence that

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an entity is not restricted before you purchase it. These purchases will likely

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be considered violations and you may incur a financial penalty, even though

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you only held them for a short time.

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Craig: What more could I have done though? If the broker couldn’t find

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them, I probably wouldn’t have found them either.

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Independence: Most publicly traded entities can be found in KICS by

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searching for their ticker symbol. If there is no ticker symbol, and you

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can’t find the entity in KICS using a full or abbreviated name, you

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should contact Risk Management - Independence for assistance

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in obtaining conclusive evidence.

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Craig: That’s helpful guidance. You know, earlier you mentioned this would be a

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violation. Even though it was the broker that executed the trade,

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will it still be a violation?

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Independence: That’s right, it doesn’t matter whether you have someone

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investing on your behalf. You’ll be held accountable for all

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investments in restricted entities, even if someone else is doing the

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trading, and regardless of when they are disposed of. And I’ll also

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point out that the same is true if a spouse or a dependent executes

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trades in restricted entities.

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Craig: I get it. Independence compliance is my responsibility and I really

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need to change the way I’ve been thinking about it. I can’t place the

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blame on what went wrong on my broker. I’ll make sure I personally check KICS

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before I, my immediate family members or my broker make any trades. I don’t

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want any more independence violations or financial sanctions. Thinking

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that I had to move fast really impaired my judgment.

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Narrator: The conversation with Risk Management - Independence

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helped Craig identify that he did not act in a manner that upheld his

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commitment to the firm’s ethics and compliance obligations.

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Although he received pressure from his broker to make a trade that might

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result in financial gain, he did not take the necessary steps to ensure his

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compliance with the independence rules first. Craig failed to recognize the

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potential independence issues, and he did not properly gather and evaluate

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all information before making a decision. He realizes now that he should

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have consulted with Risk Management - Independence to obtain

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conclusive evidence of the entity’s restriction status before giving his

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broker the go-ahead to make the investment. Craig now understands

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that a change in his behaviors and mindset toward compliance is needed

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to uphold his professional responsibilities.

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