CFA CFA Level 2 Question of the Week: Level 2 – Ethics

Question of the Week: Level 2 – Ethics

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

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