February 16, 2005
Securities Offering Reform
Posted by Brett McDonnell

I haven't seen much discussion of the SEC's Securities Offering Reform proposal. I am thinking about it now as I get ready for my next few Securities Regulation classes on the public offering process. The Securities Act of 1933 tightly controls communications companies can make as they head into a public offering of securities. The rules have always bothered me, and I am glad to see that the SEC is re-thinking some of them.

The Securities Act restricts what is called gun-jumping, that is, making offers before a registration statement is filed, and most written offers before the registration statement has become effective. The SEC understands the term "offer" very broadly, so many types of communication are affected by these rules. They thus limit how much information companies can put out there. This is in serious tension with the basic goal of the securities laws to provide as much disclosure as possible. The concern underlying the gun-jumping rules is that companies will release slanted information to encourage people to invest in their offerings. It seems to me, though, that this concern is best met through the antifraud rules that forbid false and misleading statements.

I have not yet had a chance to work my way through the 255 pages of the SEC's release on its proposals (I guess this could not be published in a law review anymore). I've barely even made it through the introduction, so I cannot comment on the details of the proposal. (I will have made it through when I teach the proposals a few classes from now, but by then I will be done with my blogging stint.) My sense of the proposed changes is that they are not revolutionary, but they do allow for more communication than is currently the case. That's the right direction, although the devil is always in the details, so we'll see if old Satan makes a showing as I slog my way through the release.

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