Washington – The Securities and Exchange Commission, seeking to bring 1930s securities-offering requirements into the modern era, have adopted new rules to allow companies to promote the sale of stocks and bonds to investors.
SEC commissioners voted 5-0 Wednesday to let companies distribute written material, in addition to the prospectus, about securities for sale and to sponsor presentations to the public. The old rule almost derailed Google Inc.’s $3.47 billion initial public offering in August after Playboy magazine ran an interview with the company’s founders.
“The package that we consider today will modernize the securities-offering and communication process while maintaining investor protection,” SEC Chairman William Donaldson said. “Investors are entitled to information at the point they commit to purchase a security.”
The reforms brought the capital markets into line with modern technologies, including the Internet, Donaldson said.
“This may be an acknowledgment by the SEC of the way real world communications now work,” said Frederick C. Lane, chief executive of Boston-based advisory and underwriting firm Lane, Berry & Co. International LLC. “Trying to monitor all the communications out there is next to impossible.”
Any public statement permitted under the new rule must be accurate and not misleading, matching the legal standard that applies to a company’s prospectus. Executives may speak to the media, as in Google’s Playboy interview, provided they file a copy of the remarks with the SEC.
The communications rule “will create a quiet revolution and make capital formation in the United States far more efficient,” Commissioner Harvey Goldschmid said.
Under the rule, electronic roadshows for IPOs would have to make the material available to an unrestricted audience to avoid filing with the agency. Other roadshows aren’t subject to filing, the SEC said.
The rule doesn’t apply to shell companies and penny-stock issuers, the agency said.
The SEC also streamlined the process for issuing securities by creating a separate class for large companies, which would get access to the market with “pay-as-you-go” programs for filing fees and registrations that become effective immediately once they’re submitted.
The automatic registration is available to about 2,500 companies with a market capitalization of $700 million or new debt of about $1 billion. They must have been registered with the SEC for at least a year to qualify.
Underwriters sold more than $2.8 trillion in SEC-registered offerings last year.
The Sarbanes-Oxley corporate governance law already requires SEC inspections of these companies at least once every three years. The additional reviews of offering registrations were redundant, the SEC said.
Companies would be ineligible for the fast-track registration if they face enforcement actions for violating securities laws, face bankruptcy or have recently received an unsatisfactory audit report.
The SEC voted 5-0 to limit the use of shell companies and require them to make more disclosure to investors. The regulation is intended to make it harder for the companies to be used for fraud, Donaldson said.
