Ian O’Sullivan, CFA, is the owner and sole employee of two companies, a public relations firm and a financial research firm. The public relations firm entered into a contract with Mallory Enterprises to provide public relations services. According to the contract, O’Sullivan received 40,000 shares of Mallory stock in payment for his services. Over the next 10 days, the public relations firm issued several press releases that discussed Mallory’s excellent growth prospects, O’Sullivan, through his financial research firm, also published a research report recommending Mallory stock as a 'buy.” According to the Standards of practice Handbook, O’Sullivan is required to disclose his ownership of Mallory stock in the: Select exactly 1 answer(s) from the following: A. press releases only. B. research report only. C. both the press release and the research report. Answer is C. My question: Why does he need to disclose the arrangement in the press release? It is a release from the public relations firm. Wouldn’t it be obvious that the public relations firm will be paid in some form for the work it is doing? Also, would public relations firm fall under CFA standards?
The public relations firm doesnt fall under CFA stds…Its Ian O’Sullivan…and he needs to disclose it in the press release because of this - ‘Over the next 10 days, the public relations firm issued several press releases that discussed Mallory’s excellent growth prospects’ They issued press releases talking abt mallory…so they have to also mention why it is so good…and the reason of which is that they have mallory shares…giving some reason here is important I guess… I hope this explanation is right though…anyone els could add anything?
It would be like Mallory telling all of his clients what a great PR firm it is when they are paying him, you’d want that disclosure. When I read it I thought B but now that I think about it C makes sense b/c of the conflict of interest.
Two initial actions will be Offset by two equal reactions i.e. Press release and Research