Generally speaking, the federal securities laws were drafted with the purpose of limiting the kind and amount of pre-offering publicity permitted in registered public offerings. Pursuant to Section 5(c) of the Securities Act of 1933, it is unlawful to offer to sell or offer to buy any security unless a registration statement has been filed. The term “offer” is defined and interpreted very broadly, with the effect that any pre-filing publicity constitutes gun jumping if it cannot be justified on the grounds that it was made for a permissible purpose, such as regularly released factual business information. As demonstrated by a recent SEC Staff comment letter repeated below, the Staff continues to consider gun jumping rules in connection with its filing reviews.

Evolution of Gun Jumping Laws

The rules related to gun jumping have evolved over time, and in 2005 the SEC substantially modernized many of the offering communication rules in its Securities Offering Reform release. Other recent updates to the offering communication rules include the following examples from the JOBS Act of 2012 and related SEC rules:

  • No Quiet Period in Regulation A+ Offerings: An issuer may “test the waters” with all potential investors before and after the filing of the offering statement to determine whether there is any interest in the contemplated securities offering, subject to certain conditions.
  • Limited Quiet Period for Emerging Growth Companies (EGCs): EGCs may “test the waters” with certain institutional investors before and after filing a registration statement to determine whether such investors might have an interest in the contemplated securities offering.
  • Rule 506(c) Private Placements Permit General Solicitation: Issuers may broadly solicit and generally advertise an offering, provided that all purchasers in the offering are accredited investors, the issuer takes reasonable steps to verify purchasers’ accredited investor status, and certain other conditions in Regulation D are satisfied.

Continue Reading The Rumors of the Death of Gun Jumping Have Been Greatly Exaggerated

Although the life of a securities lawyer can be routine and mechanical at times, it doesn’t always have to be this way!  Last year, around this time, my wife Missy saw on Facebook that the Property Brothers: Buying and Selling television show (an HGTV show for those not familiar) was going to be filming in Nashville during the summer, and the post invited those interested in being on the show to submit an application.  Our family had watched the show before and liked the renovations they did, and we thought it would be a fun experience for our family, so we decided to go for it and submit an application to see what might happen.  Well, after some interviews and waiting, we learned in the spring that we had been selected to be on the show.

Continue Reading A Completely Non-Securities Law Post: My Family Did The Property Brothers Show!

As equity valuations of public companies remain high in comparison to recent historical norms, the use of public company stock as an acquisition currency by SEC registrants in acquisitions of private companies will continue, particularly if interest rates continue to rise, thus increasing the costs associated with leveraged transactions. This blog explores legal considerations associated with the issuance of stock by a public company in connection with its acquisition of a private company. Continue Reading Complexities of Issuing Public Company Stock in Acquisitions of Private Companies

In monitoring SEC comment letters, we came across this SEC comment letter recently made public.  While we acknowledge the term “pro forma” is often used by registrants when adjusting their GAAP results to provide additional meaningful information to investors, this comment by the Staff serves as a reminder to registrants that the Staff generally dislikes non-GAAP measures titled as “pro forma” when the information is not presented in compliance with the pro forma rules in Article 11 of Regulation S-X.  In this situation, the registrant agreed to delete the words “pro forma” and instead use the words “as adjusted.”

Continue Reading SEC Staff Says Avoid Titling Non-GAAP Measures with “Pro Forma” Unless S-X Article 11 Compliant

We previously blogged here about the recent SEC disclosure simplification rules.  As the rules have now been published in the Federal Register and are set to go effective on November 5, 2018, set forth below are some FAQs on the new rules to help answer some common questions.

Continue Reading FAQs on the SEC’s New Disclosure Simplification Rules

On October 16, 2018, the SEC issued a 21(a) report announcing that it had investigated whether certain public companies that were victims of oftentimes unsophisticated, cyber-related frauds had violated federal securities laws by failing to have a sufficient system of internal accounting controls in place to detect these events.

Focus of SEC Report

The report focused on two common cyber frauds involving spoofed or otherwise compromised electronic communications. The first involved emails that purported to be from senior executives within the company (typically, the CEO) but in fact were from spoofed email domains. The second involved emails from fake vendors.  This form of scam was more technologically sophisticated than the fake executive emails as in certain instances it involved intrusions into the email accounts of the companies’ foreign vendors. Each of the nine companies referenced in the report lost at least $1 million as a result of these scams and two lost more than $30 million.  In total, the companies lost nearly $100 million to the thieves, almost all of which was never recovered.

Continue Reading SEC Issues Report Warning about Fake Email Scams

We have previously blogged about recent SEC rule changes to the definition of “smaller reporting company” (SRC) (see here) and XBRL (see here).  Our readers should know that a byproduct of these new rules include certain tweaks to the cover pages of most Securities Act and Exchange Act forms. The cover page changes related to the definition of SRC were effective September 10, 2018, while the XBRL-related cover page changes will be effective September 17, 2018.

For a discussion of the XBRL cover page changes, see our prior post here.  The SRC cover page changes can be summarized from this excerpt from the SEC’s adopting release.

Continue Reading New SEC Cover Pages Take Effect September 17

On August 17, the SEC adopted amendments intended to simplify and update the disclosure of information to investors and reduce compliance burdens for companies without significantly altering the total mix of information available to investors.  The amendments are effective 30 days after their publication in the Federal Register.

The amendments eliminate certain:

  • Redundant and duplicative requirements, which require substantially similar disclosures as GAAP, International Financial Reporting Standards (IFRS) or other SEC disclosure requirements.
  • Overlapping requirements, which are related to, but not the same as GAAP, IFRS or other SEC disclosure requirements.
  • Outdated requirements, which have become obsolete as a result of the passage of time or changes in the regulatory, business or technological environment.
  • Superseded requirements, which are inconsistent with recent legislation, more recently updated SEC disclosure requirements, or more recently updated GAAP.

Continue Reading SEC Adopts Amendments to Simplify and Update Disclosure Requirements

On July 24, the SEC proposed amendments to Rule 3-10 of Regulation S-X for guarantors and issuers of guaranteed securities registered or being registered, as well as the financial disclosure requirements in Rule 3-16 of Regulation S-X for affiliates whose securities collateralize securities registered or being registered.  Here is the proposing release.  The proposed changes are intended to provide investors with material information given the specific facts and circumstances, make the disclosures easier to understand, and reduce the costs and burdens to registrants.  The proposal will be subject to a 60-day public comment period.

Continue Reading SEC Proposes to Simplify Guarantor and Pledgor Disclosures in Registered Debt Offerings

The most recent edition of The Business Lawyer, published by the ABA’s Business Law Section, includes its Annual Review of Federal Securities Regulation prepared by its Subcommittee on Annual Review from the Committee on Federal Regulation of Securities. The Review outlines significant developments in federal securities law and regulation in 2017. The Review is divided into three sections:

  • Regulatory actions
  • Accounting statements
  • Case law developments

I currently chair the Subcommittee and wish to give special thanks to all of its distinguished authors that contributed content, including a special thanks to William Lay from Bass, Berry & Sims for helping draft and edit portions of the Review.

The Review is available here.