Question of the Week: Level 2 – Ethics (1)

Question

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.

MarkMeldrum · Answer

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.

rutadaniel · Answer

Everytime I think I get Ethics, then a question like this comes along.