- An investment management firm has been hired by ETV Corporation to work on an initial public offering for the company. The firm’s brokerage unit now has a sell recommendation on ETV, but the head of the investment-banking department has asked the head of the brokerage unit to change the recommendation from sell to buy. According to the Standards, the head of the brokerage unit would be permitted to: A. increase the recommendation by no more than one increment (in this case, to a hold recommendation). B. place the company on a restricted list and give only factual information about the company. C. assign a new analyst to decide if the stock deserves a higher rating. D. reassign responsibility for rating the stock to the head of the investment-banking unit. the correct answer is B. My question is if it is ok for the head of the brokerage unit to send out a recommendation with disclosure of their doing IPO for ETV Corporation?
no. because the recommendation would have to be “SELL”. I dont think the investment bank unit is going to get the pleasure of launching the IPO if the recommendation is SELL!!!
True, the head of investment bank probably slept the wife of the head of the brokerage unit as a return a favor. what if the original recommendation was “BUY”, Are they allowed to recommend “BUY” with IPO disclosure?
Sure, the investment bankers wouldnt have a problem with a BUY recommendation.There will obviously need to be a )reasonable basis for the recommendation and b) full disclosure of being the IPO managers in order to avoid any appearance of conflict of interest.
wolwol - Why are you questioning a black and white rule? The answer is " place the company on a restricted list and give only factual information about the company. " How do you figure that “send out a recommendation with disclosure of their doing IPO” is consistent with that rule? If you go down this path every ethics topic you’re going to get mixed up between whats allowed and what you’d think should be allowed and you’ll be lost on exam day. This is where a lot of people get confused and blow ethics, so just accept and memorize these rules, even of they seem a bit arbitrary, and stay focused.
I don’t think my comment has any bearing on the result of the answer but this is just bothering me. The issuance of ETV stock is not an INITIAL Public Offering if the stock already trades in the market and has a rating. The issuance is most likely a secondary or add-on offering.
wolwol- Ethics questions are more about “what is legal” than “what it right” let me ask you this… A blind man is trying to cross the road. You too are waiting with him at the light. Should you help him or not??? You donot help him - Perfectly Legal You help him - Perfectly Right As Super I said earlier, just memorize the rules and get done with it.
i see you point. I will just memorize those rules. 3x