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Nicholas Kaplan is an equity research analyst, currently researching Anderson Telecommunications (AT). His research suggests a recommendation of “hold”. Sanford Anderson, CEO of AT, challenges Kaplan to a golf match; Kaplan, a fair golfer accepts and proposes a wager of £500 per hole. Anderson, known to be an excellent golfer, accepts the wager, then clearly plays poorly, owing Kaplan £5,000 at the end. The following week, Kaplan publishes his research report, along with the “hold” recommendation. With regard to Standard I(B) Independence and Objectivity, Kaplan has most likely:
- A. violated the Standard.
- B. not violated the Standard because he didn’t change his recommendation.
- C. not violated the Standard because he had no way of knowing that Anderson
would deliberately lose the match.
The correct answer is Option A.
A wager with a research target could reasonably be expected to compromise Kaplan’s independence and objectivity; as such, it violates the Standard. Whether or not it actually compromised his independence or objectivity doesn’t matter in determining if he violated the Standard.
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