33-5180--Guidelines for Release of Information by Issuers Whose Securities are in Registration

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Sec. Act Release No. 5180, (Aug. 20, 1971), 1971 WL 120474

Securities and Exchange Commission (S.E.C.)

*1 Securities Act of 1933

Guidelines for Release of Information by Issuers Whose Securities are in

Registration

August 20, 1971

The Commission today took note of situations when issuers whose securities are 'in registration' [FN1] may have refusel to answer legitimate inquiries from stockholders, financial analysts, the press, or other persons concerning the company or some aspect of its business. The Commission hereby emphasizes that there is no basis in the securities acts or in any policy of the Commission which would justify the practice of non-disclosure of factual information by a publicly held company on the grounds that it has securities in registration under the Securities Act of 1933 (Act). Neither a company in registration nor its representatives should instigate publicity for the purpose of facilitating the sale of securities in a proposed offering. Further, any publication of information by a company in registration other than by means of a statutory prospectus should be limited to factual information and should not include such things as predictions, projections, forecasts or opinions with respect to value.
A basic purpose of the Act and the Securities Exchange Act of 1934 is to require dissemination of adequate and accurate information concerning issuers and their securities in connection with the offer or sale of securities to the public, and the publication periodically of material business and financial facts, knowledge of which is essential to an informed trading market in such securities. It has been asserted that the increasing obligations and incentives of corporations to make timely disclosures concerning their affairs creates a possible conflict with statutory restrictions on publication of information concerning a company which has securities in registration. As the Commission has stated in previously issued releases this conflict may be more apparent than real. Disclosure of factual information in response to inquiries or resulting from a duty to make prompt disclosure under the antifraud provisions of the securities acts or the timely disclosure policies of self-regulatory organizations, at a time when a registered offering of securities is comtemplated or in process, can and should be effected in a manner which will not unduly influence the proposed offering. [FN2]

STATUTORY REQUIREMENTS

In order for issuers and their representatives to avoid problems in responding to inquiries, it is essential that such persons be familiar with the statutory requirements governing this area. Generally speaking, section 5(c) of the Act makes it unlawful for any person directly or indirectly to make use of any means or instruments of interstate commerce or of the mails to offer to sell a security unless a registration statement has been filed with the Commission as to such security. Questions arise from time to time because many persons do not realize that the phrase 'offer to sell' is broadly defined by the Act and has been liberally construed by the courts and Commission. For example, the publication of information and statements, and publicity efforts, made in advance of a proposed financing which have the effect of conditioning the public mind or arousing public interest in the issuer or in its securities constitutes an offer in violation of the Act. The same holds true with respect to publication of information which is part of a selling effort between the filing date and the effective date of a registration statement.
*2 Section 5(a) of the Act makes it unlawful to sell a security unless a registration statement with respect to such security has become effective. Section 5(b) makes it unlawful to make use of any means or instruments of transportation or communication in interstate commerce or of the mails to transmit a prospectus with respect to any security as to which a registration statement has been filed unless such prospectus contains the information specified by section 10 of the Act. Pitfalls may be encountered because the term 'prospectus' has a broad meaning. The Act defines prospectus to include any notice, circular, advertisement, letter, or communication written or by radio or television, which offers any security for sale except that any communication sent after the effective date of a registration statement shall not be deemed a prospectus if, prior to or at the same time with such a communication, a written prospectus meeting the requirements of section 10 [FN3] of the Act was sent or given. [FN4]

GUIDELINES

The Commission strongly suggests that all issuers establish internal procedures designed to avoid problems relating to the release of corporate information when in registration. As stated above, issuers and their representatives should not initiate publicity when in registration, but should nevertheless respond to legitimate liquiries for factual information about the company's financial condition and business operations. Further, care should be exercised so that, for example, predictions, projections, forecasts, estimates and opinions concerning value are not given with respect to such things, among other, as sales and earnings and value of the issuer's securities.
It has been suggested that the Commission promulgate an all inclusive list of permissible and prohibited activities in this area. This is not feasible for the reason that determinations are based upon the particular facts of each case. However, the Commission as a matter of policy encourages the flow of factual information to shareholders and the investing public. Issuers in this regard should:
1. Continue to advertise products and services.
2. Continue to send out customary quarterly, annual and other periodic reports to stockholders.
3. Continue to publish proxy statements and send out dividend notices.
4. Continue to make announcements to the press with respect to factual business and financial development; i.e., receipt of a contract, the settlement of a strike, the opening of a plant, or similar events of interest to the community in which the business operates.
5. Answer unsolicited telephone inquiries from stockholders, financial analysts, the press and others concerning factual information.
6. Observe an 'open door' policy in responding to unsolicited inquiries concerning factual matters from securities analysts, financial analysts, security holders, and participants in the communications field who have a legitimate interest in the corporation's affairs.
*3 7. Continue to hold stockholder meetings as acheduled and to answer shareholders' inquiries at stockholder meetings relating to factual matters.
In order to curtail problems in this area, issuers in this regard should avoid:
1. Issuance of forecasts, projections, or predictions relating but not limited to revenues, income or earnings per share.
2. Publishing opinions concerning values.
In the event a company publicly releases material information concerning new corporate developments during the period that a registration statement is pending, the registration statement should be amended at or prior to the time the information is publicly released through inadvertance, the pending registration statement should be promptly amended to reflect such information.
The determination of whether an item of information or publicity could be deemed to contitute an offer--a step in the selling effort--in violation of section 5 must be made by the issuer in the light of all the facts and circumstances surrounding each case. The Commission recognizes that questions may arise from time to time with respect to the release of information by companies in registration and, while the statutory obligation always rests with the company and can never be shifted to the staff, the staff will be available for consultation concerning such questions. It is not the function of the staff to draft corporate press releases. If a company, however, desires to consult with the staff as to the application of the statutory requirements to a particular case, the staff will continue to be available, and in this regard the pertinent facts should be set forth in written form and submitted in sufficient time to allow due consideration.

By the Commission

RONALD F. HUNT, Acting Associate Secretary.
August 16, 1971.

[FR Doc.71-12245 Filed 8-20-71;8:47 am] 
 
FN1 'In registration' is used herein to refer to the entire process of registration, at least from the time an issuer reaches an understanding with the broker-dealer which is to act as managing underwriter prior to the filing of a registration statement and the period of 40 to 90 days during which dealers must deliver a prospectus.

FN2 Under Rule 135 (17 CFR 230.135), as recently amended by Securities Act Release No. 5101 (35 F.R. 18456), for example, a notice given by an issuer that it proposes to make a public offering of securities to be registered under the Act is not deemed to constitute an offer of such securities for sale if the notice states that the offering will be made only by means of a prospectus and contains only certain specified information.

FN3 Such a prospectus would contain information concerning, among other things, the issuer's financial condition, business, property, management, and certain information about the offering including the manner of the offering and the intended use of the proceeds received.

FN4 However, section 2(10) of the Act and Rule 134 (17 CFR 230.134) promulgated pursuant thereto exclude from the term 'prospectus' the use of the 'Tombstone ad' and the 'identifying statement' described thereunder. Furthermore, Rules 433, 434, and 434A (17 CFR 230.433, 230.434, 230.434a) relate to the use of preliminary and summary prospectuses.