Are people so clueless they couldn't see a problem with giving away 500 CD's full of popular music? If the CD's were recordings of the Prom itself and the music was audible over other stuff that was going on, it probably still wouldn't be legal, but at least it would fall somewhat within legal gray areas (private recordings of events where copyrighted music happens to be played are generally legit, if the music is not the primary focus of the recording, but something that's widely distributed isn't a "private recording").
May not have been the smartest thing to do these days. But it's only a mixed CD of music given away free at the Prom.
This was done with cassettes for years with no issue.
Heck back when I was in the Navy. Special Services had recording rooms. Were you could record cassettes from LP's or reel to reel's
More interesting is how did they know they were doing this?