SEC's IPO process may be revised

Agency's staff reportedly draft rules easing limits on comments

Public access to road shows

August 17, 2004|By BLOOMBERG NEWS

WASHINGTON - The Securities and Exchange Commission may revise its rules on initial stock offerings to modernize the 1930s-era guidelines, agency commissioners and staff said yesterday.

The SEC staff is drafting changes to reduce restrictions on public comments when companies go public, an issue that almost derailed Google Inc.'s $3.47 billion offering last week when Playboy published an interview with the company's founders.

The SEC rulemaking may also address road shows, sales meetings where small investors are often excluded, agency officials said.

"There are just dozens upon dozens of issues that jump out," SEC Commissioner Harvey J. Goldschmid said in an interview. "I suspect we will get rid of a lot of wheel spinning and we will make the system more effective and less costly."

SEC Commissioner Cynthia A. Glassman said the agency should take a "fresh look" at the rules.

"In an environment in which many people prefer to provide and get information electronically as opposed to on paper, we need to consider whether there are better ways to make the information available to all investors in a timely and accurate fashion," she said.

The SEC for years has discussed streamlining the process for issuing securities. The rules, designed to prevent companies from promoting the stock, are too arcane and confusing for investors and companies, securities lawyers said.

"These rules date back to the '30s, and it is time to revisit them," said Brian J. Lane, an attorney at Gibson, Dunn & Crutcher LLP in Washington and the former head of the SEC division that oversees new securities offerings.

The SEC has punished companies that violate the law, usually by delaying their offerings. In June, Inc., a San Francisco company that sells business software over the Internet, announced it was delaying its IPO for several weeks because chief executive Marc R. Benioff gave an interview to The New York Times.

Google's offering, the largest by an Internet company, was allowed to proceed although the company in a filing last week with the SEC said the Playboy interview may make it vulnerable to shareholder lawsuits.

Playboy obtained the interview a week before Google first filed its IPO papers April 29, but the edition with the article didn't hit newsstands until Friday.

The SEC restricts what a company can say from the time it files a registration statement with the SEC until the agency approves the paperwork. During that so-called quiet period, companies can only discuss "ordinary-course business," according to the law.

When a company registers a stock sale with the SEC, it can only provide oral, not written, communication to investors. The oral comments must follow what the company has written in its prospectus.

As a result, executives generally don't give interviews, which are considered written communication. And while the executives are allowed to speak about the company at road shows, the meetings aren't usually open to small investors.

The SEC staff proposal may give companies more leeway to open road shows to the public. One idea, proposed last year by the National Association of Securities Dealers and the New York Stock Exchange, would let companies put video presentations of their road show meetings online.

"The reliance on oral road show presentations, coupled with selective attendance at road shows, creates a disparity in information that may disadvantage retail investors," the regulators wrote in their May 2003 report.

Barring written communications in an electronic age makes little sense, some lawyers said.

"Right now, if I'm a broker, I can call you and read you information but I can't send you an e-mail with the same information," said William J. Williams Jr., a partner at Sullivan & Cromwell LLP in New York.

Alan Beller, who heads the SEC's corporation finance division, has favored modernizing the securities offering rules since he joined the SEC in 2002. His plans were delayed by accounting scandals that began with Enron Corp., securities lawyers said.

"It's fair to say that initiative was sidetracked by Enron," said Stanley Keller, a securities partner at Palmer & Dodge LLP Boston.

Beller is taking up the issue again in speeches to industry groups, telling a conference in July that the agency is "looking at liberalization of communications, especially written communications, beyond the statutory prospectus, in registered offerings."

A 1998 plan, dubbed "the aircraft carrier" proposal because of its size, would have loosened many of the quiet-period prohibitions of IPOs.

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