Tsunami Test

The University has received an NSF grant to support a study to develop a low-cost seismographic instrument to predict tsunami events caused by earthquakes. Professor Richter, the principal investigator, has been working on a conceptual design for this instrument that he will continue to develop under the NSF grant. He also believes that this project would be a perfect test for a similar instrument being developed by a company he spun off from his University research almost a decade before. The company is privately held by the professor and two other investors, each of whom hold one-third of the company’s stock. The company has also received 1 million dollars of venture capital funding. Although it has yet to bring a product to market, the company holds a number of patents which build on patents Professor Richter obtained before coming to the University. The professor believes that if the NSF project is successful, the value of the patents might increase substantially.

Does the professor have a significant financial interest in the company that needs to be disclosed to the University?
(You may select more than one option.)

A. Yes. His ownership interest in HGI is greater than 5%.
B. Yes. Professor Richter and the company hold the rights to intellectual property, the value of which would reasonably appear to be affected by the proposed research.
C. No. The stock is not publicly traded so it has no free market value.
D. No. The value of the patents cannot be established before the conclusion of the study.


The best answers are A and B.


Under NSF policy, Significant Financial Interests are defined as income, salary or royalty payments of more than $10,000 per year, equity interests greater than 5% or valued at more than $10,000, and intellectual property rights  held by an outside organization.

Professor Richter has not reported any income but he does hold approximately 33% of the equity in the company (more than 5%) and he and the company hold intellectual property rights. It is reasonable for Professor Richter to believe that his financial interests in the company would reasonably appear to be affected by the research being proposed for funding by NSF, or that the company’s financial interests (e.g. its earnings, value, sale of products, etc.) would reasonably appear to be affected by the research.

Therefore, those financial interests must be disclosed so that the University can review them and determine whether they constitute a conflict of interest that needs to be eliminated, reduced or managed.