COMPLIANCE PROCEDURE FOR INVESTOR RELATIONS FIRMS

A compliance procedure for practices by investor relations consultants in issuing information should be standard, and appropriate parts of the procedure should be disseminated to all clients. This protects both the company and the consultant, as well as the investing public. It assures that all issued information is carefully reviewed (and if necessary, questioned), and that all sources are clearly identified. And certainly, the consultant, for his or her own protection, should review carefully all available financial and corporate data and background on each of its prospective clients, to assure that it represents only reputable companies.

A primary factor in compliance procedures for investor relations consultants is that they know their clients. In a proper relationship, the consultant works closely with the chief executive and financial officers, and should come to know a great deal about them and the company. The consultant is well informed about the company’s financial and corporate structures, as well as its day-to-day operations. This basic knowledge provides a framework in which to judge new financial and operational information, and should assure the consultant that he is not complicitous in disseminating false information. At the same time, the well-informed consultant may well be considered an insider, in that he or she has access to inside information. The consultant must function accordingly.

Proper compliance procedures for external consultants require that all issued material must be accompanied by an appropriate form, retained by the consultant, with a copy of the material, indicating the source of information, the time it was given for release, the time it is to be released, whether the copy has been or is to be amended, and by whom. Additional comments might indicate who prepared the original material, recommendations made by the consultant but not accepted or followed by the client, and how the information was transmitted for preparation for release. If additional approval is required or was given by attorneys, accountants, or others, it is indicated. The form is then signed by the company officer responsible, as well as by the consultant responsible. In the case of a release approved by telephone, or supplied by mail or fax, a variation of the form, designed for that purpose, is used, and signed by the consultant who received it.

Many consulting firms designate a senior firm member as compliance officer. The compliance officer’s job is to oversee all procedures for compliance with SEC, exchange, NASD, blue sky regulations, and the firm’s own policies, and should include a periodic review of all material and the ability to confer directly with the firm’s securities attorney.

For the corporation intent upon disseminating false or misleading information, very little can be done by anybody to prevent it. Nevertheless, the acoustics of Wall Street are magnificent. The value to any corporation of issuing false information is remarkably short-lived, and the penalty, in terms of at least investor reaction, if not the law as well, is swift and intense.