The Public Offering Gun Jumping Concerns For The Ipo Section 5 - Securities Regulation

Gun Jumping Concerns for the IPO - § 5

1. In General

   1. § 5(c) prohibits any offer to sell or offer to buy prior to the filing of a registration statement.

   2. Under § 5(a), no sale or deliveries of registered securities can occur until the registration statement is effective.

   3. After the registration statement is filed and even after it is effective, § 5(b)(1) requires that all written offers to sell be in connection with a prospectus that complies with § 10 of the '33 Act.

   4. Per § 5(b)(2), a final prospectus must accompany any transportation of the securities to investors.

   5. The jurisdictional reach of § 5 is the use of any means or instruments of transportation or communication in interstate commerce or the mails.

      • § 2(a)(7) provides that the term "interstate commerce" means "trade or commerce in securities or any transportation or communication relating thereto among the several States or between the District of Columbia or any Territory of the United States and any State or other Territory, or between any foreign country and any State, Territory, or the District of Columbia, or within the District of Columbia." (Stat. Supp. pg. 3)

      • THEREFORE, none of the provisions of § 5 apply if all activities are conducted on a face-to-face basis with no use of the mail, phone, or other commercial medium to arrange or carry out the sale.

   6. If either the security is exempt or the transaction qualifies for an exemption, the regulatory demands of § 5 do not apply.

      • The most important exemption is that from § 4(1), which exempts from § 5 transactions by everyone other than "an issuer, underwriter, or dealer."

      • § 2(a)(4) provides that "issuer" means "every person who issues or proposes to issue any security; except that with respect to certificates of deposit, voting-trust certificates, or collateral-trust certificates, or with respect to certificates of interest or shares in an unincorporated investment trust not having a board of directors (or persons performing similar functions) or of the fixed, restricted management, or unit type, the term 'issuer' means the person or persons performing the acts and assuming the duties of depositor or manager pursuant to the provisions of the trust or other agreement or instrument under which such securities are issued; except that in the case of an unincorporated association which provides by its articles for limited liability of any or all of its members, or in the case of a trust, committee, or other legal entity, the trustees or members thereof shall not be individually liable as issuers of any security issued by the association, trust, committee, or other legal entity; except that with respect to equipment-trust certificates or like securities, the term 'issuer' means the person by whom the equipment or property is or is to be used; and except that with respect to fractional undivided interests in oil, gas, or other mineral rights, the term 'issuer' means the owner of any such right or of any interest in such right (whether whole or fractional) who creates fractional interests therein for the purpose of public offering."

      • § 2(a)(11) provides that "underwriter" means "any person who has purchased from an issuer with a view to, or offers to sell for an issuer in connection with, the distribution of any security, or participates or has a direct or indirect participation in any such undertaking, or participates or has a participation in the direct or indirect underwriting of any such undertaking; but such term shall not include a person whose interest is limited to a commission from an underwriter or dealer not in excess of the usual and customary distributors’ or sellers’ commission. As used in this paragraph the term 'issuer' shall include, in addition to an issuer, any person directly or indirectly controlling or controlled by the issuer, or any person under direct or indirect common control with the issuer."

      • § 2(a)(12) provides that "dealer" means "any person who engages either for all or part of his time, directly or indirectly, as agent, broker, or principle, in the business of offering, buying, selling, or otherwise dealing or trading in securities issued by another person."

   7. Certain communications are permissible during the offering process

      • There may be a safe harbor OR

        • Each safe harbor has very technical requirements

      • If there is no safe harbor, the communication needs to be examined in accordance with the general principles that define "offer" or "offer to sell" and a "prospectus"

        • § 2(a)(3) provides that

          • The term “sale” or “sell” shall include every contract of sale or disposition of a security or interest in a security, for value. The term “offer to sell”, “offer for sale”, or “offer” shall include every attempt or offer to dispose of, or solicitation of an offer to buy, a security or interest in a security, for value. The terms defined in this paragraph and the term “offer to buy” as used in subsection (c) of section 5 of this title shall not include preliminary negotiations or agreements between an issuer (or any person directly or indirectly controlling or controlled by an issuer, or under direct or indirect common control with an issuer) and any underwriter or among underwriters who are or are to be in privity of contract with an issuer (or any person directly or indirectly controlling or controlled by an issuer, or under direct or indirect common control with an issuer). Any security given or delivered with, or as a bonus on account of, any purchase of securities or any other thing, shall be conclusively presumed to constitute a part of the subject of such purchase and to have been offered and sold for value. The issue or transfer of a right or privilege, when originally issued or transferred with a security, giving the holder of such security the right to convert such security into another security of the same issuer or of another person, or giving a right to subscribe to another security of the same issuer or of another person, which right cannot be exercised until some future date, shall not be deemed to be an offer or sale of such other security; but the issue or transfer of such other security upon the exercise of such right of conversion or subscription shall be deemed a sale of such other security. Any offer or sale of a security futures product by or on behalf of the issuer of the securities underlying the security futures product, an affiliate of the issuer, or an underwriter, shall constitute a contract for sale of, sale of, offer for sale, or offer to sell the underlying securities. Any offer or sale of a security-based swap by or on behalf of the issuer of the securities upon which such security-based swap is based or is referenced, an affiliate of the issuer, or an underwriter, shall constitute a contract for sale of, sale of, offer for sale, or offer to sell such securities. The publication or distribution by a broker or dealer of a research report about an emerging growth company that is the subject of a proposed public offering of the common equity securities of such emerging growth company pursuant to a registration statement that the issuer proposes to file, or has filed, or that is effective shall be deemed for purposes of paragraph (10) of this subsection and section 5(c) of this title not to constitute an offer for sale or offer to sell a security, even if the broker or dealer is participating or will participate in the registered offering of the securities of the issuer. As used in this paragraph, the term “research report” means a written, electronic, or oral communication that includes information, opinions, or recommendations with respect to securities of an issuer or an analysis of a security or an issuer, whether or not it provides information reasonably sufficient upon which to base an investment decision.

        • § 2(a)(10) provides that

          • The term “prospectus” means any prospectus, notice, circular, advertisement, letter, or communication, written or by radio or television, which offers any security for sale or confirms the sale of any security; except that (a) a communication sent or given after the effective date of the registration statement (other than a prospectus permitted under subsection (b) of section 10 of this title) shall not be deemed a prospectus if it is proved that prior to or at the same time with such communication a written prospectus meeting the requirements of subsection (a) of section 10 of this title at the time of such communication was sent or given to the person to whom the communication was made, and (b) a notice, circular, advertisement, letter, or communication in respect of a security shall not be deemed to be a prospectus if it states from whom a written prospectus meeting the requirements of section 10 of this title may be obtained and, in addition, does no more than identify the security, state the price thereof, state by whom orders will be executed, and contain such other information as the Commission, by rules or regulations deemed necessary or appropriate in the public interest and for the protection of investors, and subject to such terms and conditions as may be prescribed therein, may permit.

2. (1) The Pre-Filing Period

   1. In General

      • Under § 5(c), it is unlawful "to offer to sell or offer to buy" any security unless a registration statement has been filed for that security.

      • Even after a registration statement is filed, the constraints of § 5(c) reappear if that registration statement "is the subject of a refusal order or stop order stop order or (prior to the effective date of the registration...