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MONEY

Setting Up an SEC-Compliance Program

Some suggestions for avoiding insider trading mishaps once a company goes public.
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When small companies go public, they often find themselves unprepared for the enormous financial and legal risks they face from complex Securities and Exchange Commission regulations. "If the SEC decides that one of your directors or officers has traded on inside information, your company or its management can be held financially liable," explains Ralph Sutcliffe, a partner at Kronish, Lieb, Weiner & Hellman, in New York City.

To protect yourself and your company, set up a two-tiered compliance program and appoint your chief financial officer, general counsel, or corporate secretary to supervise it. Here's how:

* For all employees. "Send a memorandum explaining your company's position that no one should trade the company's stock based on knowledge of material information that hasn't been disclosed to the general public," Sutcliffe advises. State clearly that anyone who violates the policy will be dismissed.

* For officers, directors, and others who might possess inside information. Circulate a document that spells out legal issues and consequences, and that requires recipients to check with your company's compliance officer before buying or selling company stock.

At Research Frontiers, a $350,000 light-control-research business in Woodbury, N.Y., that has made two stock offerings, all employees and directors must meet with Joseph Harary, its general counsel, before purchasing stock. "Before issuing my written approval for the transaction, I make certain employees don't possess any material information that has not been disclosed in a press release or financial report." Research Frontiers also monitors its employees' stock trades involving company licensees or suppliers.

-- Jill Andresky Fraser

Last updated: Dec 1, 1992




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