A member owns a large stake in a company whose stock is recommended to clients and fails to disclose. Violation?

• A. Standard VI.A Disclosure of Conflicts
• B. Standard I.C Misrepresentation
• C. Standard IV.B Fair Dealing
• D. Standard II.A Material Nonpublic Information

Answer: (A)

The key idea here is disclosure of conflicts of interest. If a member has a large financial stake in a company whose stock is being recommended to clients, that stake could bias the analyst’s judgment. The duty is to be transparent about any conflicts so clients can assess the objectivity of the advice. Failing to disclose a material ownership stake undermines trust and violates the standard requiring disclosure of conflicts of interest.

This isn’t about misrepresentation or insider information. Misrepresentation would involve conveying false or misleading information about investments, while material nonpublic information deals with trading on undisclosed, price-moving data. Fair dealing concerns how recommendations are made fairly across clients, not the disclosure of personal financial conflicts.