ABA Journal’s 10th Annual Blawg 100
A risk factor disclosure involves a discussion of circumstances, trends, or issues that may affect a company’s business, prospects, operating results, or financial condition. Risk factors must be disclosed in registration statements under the Securities Act and registration statements and reports under the Exchange Act. In addition, risk factors must be included in private offering documents where the exemption relied upon requires the delivery of a disclosure document, and is highly recommended even when such disclosure is not statutorily required.
The Importance of Risk Factors
Risk factors are one of the most often commented on sections of a registration statement. The careful crafting of pertinent risk factors can provide leeway for more robust discussion on business plans and future operations, and can satisfy a wide arrange of SEC concerns regarding existing financial and non-financial matters (such as potential default provisions in debt, dilution matters, inadvertent rule violations, etc.).
Although smaller reporting companies are
ABA Journal’s 10th Annual Blawg 100
Illegal insider trading refers generally to buying or selling a security, in breach of a fiduciary duty or other relationship of trust and confidence, while in possession of material, nonpublic information about the security. Insider trading violations may also include “tipping” such information, securities trading by the person “tipped,” and securities trading by those who misappropriate such information. Any and all persons that buy and sell stock may be subject to insider trading liability. This blog sets forth a particular hypothetical fact scenario and analyzes the associated insider trading implications.
Hypothetical Fact Pattern: Company X (the “Company”) sells shares to a group of 35 unaffiliated shareholders pursuant to an effective S-1 registration statement. These same 35 unaffiliated shareholders (the “Sellers”) sell their registered stock to a group of 35 unaffiliated purchasers (the Buyers”) in a private transaction (the “Transaction”). At or near the same time as the Transaction, the control block
Conducting concurrent private and public offerings has historically been very tricky and limited, mainly as a result of the SEC’s position that the filing of an S-1 registration statement and unlimited ability to view such registration statement on the SEC EDGAR database in and of itself acted as a general solicitation and advertisement negating the availability of most private placement exemptions. In addition to the impediment of finding a private exemption to rely on, concurrent private and public offerings raised concerns of gun jumping by offering securities for sale prior to the filing of a registration statement, as prohibited by Section 5(c) of the Securities Act of 1933, as amended. However, with the enactment of the JOBS Act including its Rule 506(c) allowing general solicitation and advertising in an exempt offering, rules allowing the confidential submittal of registration statements for emerging growth companies (EGC) and rules permitting testing the waters communications prior to and after the filing of a
Section 4(2) of the Securities Act of 1933 provides that the registration requirements of Section 5 do not apply to “transactions by an issuer not involving any public offering.” The definition of an “issuer” is pretty straightforward as found in Section 2(a)(4) and includes, “the person who issues or proposes to issue” a security and is understood to mean the entity that originally sells the securities. However, not so straightforward is what constitutes a “public offering,” which term is not defined in the Securities Act. In reliance on Section 4(2) the SEC enacted Rule 506 as part of Regulation D.
Rule 506 as a Safe Harbor Provision
Rule 506 is a Safe Harbor. In other words, if all the conditions of Rule 506 are met, you can rest assured that the conditions of Section 4(2) have been satisfied. However, Section 4(2) can be satisfied as a standalone exemption separate from Rule 506. The importance of the distinction between Section 4(2)