Richard Cardinal, CFA, is the founder of Volcano Capital Research, an investment management firm whose sole activity is short selling. Cardinal seeks out companies whose stocks have had large price increases. Cardinal also pays several lobbying firms to update him immediately on any legislative or regulatory changes that may impact his target companies. Cardinal sells short those target companies he estimates are near the peak of their sales and earnings and that his sources identify as facing legal or regulatory challenges. Immediately after he sells a stock, Cardinal conducts a public relations campaign to disclose all of the negative information he has gathered on the company,Β even if the information is not yet public. Which of Cardinalβs following actions isΒ most likelyΒ to be in violation of the CFA Institute Standards of Professional Conduct?
- Selling stock short
- Trading on information from lobbyists
- Disclosing information about target companies
According to the last line the person was using lobbying firms to obtain insider information.
but answer given is (3), which I agree but, what is wrong in my understanding?
Hello,
To understand the question lets first understand this differenceΒ β
Bribery and lobbying are often conjoined in the public mind: Critics of lobbying suggest that itβsΒ bribery in a suit. While both seek a favorable outcome, the two remain distinct practices. Bribery is considered an effort to buy powerβpaying to guarantee a certain result; lobbying is considered an effort to influence power, often by offering contributions. The main difference: Bribery is considered illegal,Β while lobbying is not.
Now the personΒ cardinal discloses the information of target companiesΒ which is a violation.
Hope this helps!