The Securities and Exchange Commission (SEC) imposes restrictions on communications when a securities offering is contemplated or in process. Generally, these communications restrictions are intended to prevent issuers and underwriters from attempting to offer or sell securities in the absence of available information about the issuer or the securities. The policy underlying these restrictions is the concern that certain communications may condition the market or arouse public interest in a particular security without providing investors with adequate disclosure. Violations of these restrictions are typically referred to as “gun jumping.”
Gun jumping restrictions apply to all forms of communications, from press releases to interviews to communications on social media platforms, such as Facebook postings and Twitter “tweets.” Companies should remember that intent is not required for the SEC to determine that gun jumping has occurred. The fact that an action had the effect of conditioning the market for an issuance of securities may be sufficient. A violation may result in the SEC imposing a “cooling-off period,” which could delay a proposed public offering and give rise to rescission rights (investors having the statutory right to put back the securities purchased in the offering and receive a full refund of the purchase price plus up to one year of interest) and possible sanctions or fines by the SEC.
While issuers should not be precluded from doing business in the ordinary course, care should be taken to avoid actions that might be construed as publicity designed to stimulate interest in an offering of securities. In light of the complexity of the rules and regulations, and the significant consequences that may occur in the case of non-compliance, issuers should institute well-defined policies and procedures governing communications to avoid inadvertent violations of these rules.
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Topics: Compliance, IPO, SEC, Securities
Business Organization Updates, Communications & Media Law Updates, Finance & Banking Updates, Securities Law Updates
DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.
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