Gunjumping Restrictions On Communications Related To IPOs
”Gunjumping” is the dissemination of information regarding the Issuer before a complete prospectus has been filed with the Securities and Exchange Commission (“SEC”). Communications prior, during and immediately following the filing of a registration statement are strictly regulated to prevent an Issuer from hyping the market in association with an offering. In addition, the SEC wants to ensure that investors decisions to participate in an offering are based on information that has been reviewed by the SEC and meets the disclosure standards set forth in the securities laws.
Registration Requirements for Sales
During the pre-filing period, Section 5(c) of the Securities Act of 1933, as amended (the “Securities Act”) makes it “unlawful for any person, directly or indirectly, to… offer to sell or offer to buy… any security, unless a registration statement has been filed as to such security.” An offer to sell or offer to buy are broadly defined to include every attempt or offer to dispose of a
Back To Basics – IPO Or Not To IPO?
Initial Public Offerings (IPO’s) are on the rise once again. I have potential clients calling me daily interested in going public through an IPO, most have little or no prior knowledge of the public company arena – so back to basics. An IPO is an initial public offering of securities. Prior to proceeding with an IPO, an Issuer should consider the advantages, disadvantages and alternatives.
The advantages of an IPO include:
- Access to capital
- Liquidity of stock
- Public image and prestige; and
- Ability to attract and retain better personnel
The disadvantages of an IPO include:
- Expense – both of the initial transaction and ongoing compliance;
- Public disclosure of business information – public companies are required to be transparent which can give private competitors an edge;
- Limitations on long term strategic decisions
- Civil and criminal liability of executive officers and directors; and
- Takeover danger
The alternatives to an IPO for an Issuer seeking capital include:
- A Section 4(2) and/or Regulation D
Basic Refresher On The Private Placement Exemption
Section 4(2) of the Securities Act of 1933, as Amended (“Securities Act”) provides the statutory basis for private placement offerings. In particular, Section 4(2) exempts “transactions by an issuer not involving any public offering.” The key components of this statutory exemption are that the offering must be by the Issuer, not an affiliate, agent or third party, and that the transactions must not involve a public offering. In order to determine if there is a public offering, practitioners must consider Section 2(11) of the Securities Act which defines an underwriter. The Securities and Exchange Commission (“SEC”) and courts limit the scope of Section 4(2) by preventing indirect public offerings by issuers and control persons through third parties. Accordingly, if an investor acts as a link in the chain of transactions resulting in securities being distributed to the public, they are an underwriter, and the exemption under Section 4(2) is not available.
The Ralston Purina Standard
The leading case interpreting Section
