SEC May Loosen ‘Quiet Period’ Rules
The Securities and Exchange Commission may revise its rules on initial stock offerings to modernize the 1930s-era guidelines, according to agency commissioners and staff members.
The SEC staff is drafting changes to reduce restrictions on public comments when companies go public, an issue that almost derailed Google Inc.’s $3.47-billion offering last week when Playboy magazine published an interview with the company’s founders. The SEC rulemaking may also address roadshows, sales meetings where small investors are often excluded, agency officials said.
“There are just dozens upon dozens of issues that jump out,” SEC Commissioner Harvey J. Goldschmid said. “I suspect we will get rid of a lot of wheel spinning and we will make the system more effective and less costly.”
The SEC for years has discussed streamlining the process for issuing securities. The rules, designed to prevent companies from touting the stock, are too arcane and confusing for investors and companies, securities lawyers said.
“These rules date back to the ‘30s and it is time to revisit them,” said Brian Lane, an attorney at Gibson, Dunn & Crutcher in Washington and a former head of the SEC division that oversees new securities offerings.
The SEC has punished companies that violate the law, usually by delaying their offerings. In June, Salesforce.com Inc., a San Francisco-based firm that sells business software over the Internet, announced it was delaying its initial public offering for several weeks because Chief Executive Marc Benioff gave an interview to the New York Times.
Google’s offering, the largest by an Internet company, was allowed to proceed although the company said in an SEC filing last week that the Playboy interview might make it vulnerable to shareholder suits.
SEC Commissioner Cynthia A. Glassman said the agency should take a “fresh look” at the rules.
“In an environment in which many people prefer to provide and get information electronically as opposed to on paper, we need to consider whether there are better ways to make the information available to all investors in a timely and accurate fashion,” she said.
The SEC restricts what a company can say from the time it files a registration statement with the SEC until the agency approves the paperwork. During that so-called quiet period, companies can discuss only “ordinary-course business,” according to the law.
When a company registers a stock sale with the SEC, it can provide only oral, not written, communication to investors. The oral comments must follow what the company has written in its prospectus.
As a result, executives generally don’t give interviews, which are considered written communication. And though the executives are allowed to speak about the company at roadshows, the meetings aren’t usually open to small investors.
The SEC staff proposal may give companies more leeway to open roadshows to the public. One idea, proposed last year by the NASD (formerly the National Assn. of Securities Dealers) and the New York Stock Exchange, would let companies put video presentations of their roadshow meetings online.
“The reliance on oral roadshow presentations, coupled with selective attendance at roadshows, creates a disparity in information that may disadvantage retail investors,” the regulators wrote in a May 2003 report.
Barring written communications in an electronic age makes little sense, some lawyers said.
“Right now, if I’m a broker, I can call you and read you information but I can’t send you an e-mail with the same information,” said Bill Williams, a partner at Sullivan & Cromwell in New York.
Alan Beller, who heads the SEC’s corporation finance division, has favored modernizing the securities offering rules since he joined the SEC in 2002. His plans were delayed by accounting scandals that began with Enron Corp., securities lawyers said.
Beller is taking up the issue again in speeches to industry groups, telling a conference in July that the agency was “looking at liberalization of communications, especially written communications, beyond the statutory prospectus, in registered offerings.”
Before Beller, the SEC published proposals for changing the rules but did not enact them. A 1998 plan would have loosened many of the initial offering quiet-period prohibitions.
