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.