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SEC Votes on 'Quiet Period' Restrictions
Tuesday October 26, 12:11 pm ET
By Marcy Gordon, AP Business Writer
SEC Votes to Propose Loosened Restrictions on Pre-IPO 'Quiet Period'


WASHINGTON (AP) -- Federal regulators proposed Tuesday to loosen restrictions on executives' comments in the weeks before their company goes public in a stock sale, a move that could bring the first significant changes in 70 years to a traditional fixture known as the quiet period.

The Securities and Exchange Commission voted 5-0 to seek public comment on the proposal, part of a broader plan to ease regulation of new stock offerings. If the SEC eventually adopts it, companies will be allowed to disseminate more information to investors in the weeks before an initial public offering -- using, for example, online updates to the prospectus. Company executives could give interviews to the media and conduct "road shows" for a wide audience of prospective investors.

"We are in an age where ... our current framework and restrictions are outmoded," Alan Beller, director of the SEC's corporation finance division, said before the vote at a public meeting. The current system, he told the SEC commissioners, "has had the effect of chilling communications" from companies to investors.

The quiet period, also called the "waiting period," begins when a company files a statement with the SEC to register new stock and ends when the agency approves the registration statement. During that time, Depression-era securities laws limit the information that company executives and investment bankers underwriting the stock offering can release publicly, other than through the prospectus.

Under the new proposal, public statements that tend to hype the new stock would continue to be prohibited, and company executives would be held liable for any misstatements.

While it moves toward easing regulation of new stock offerings, the SEC is tightening in another area, mandating new oversight for hedge funds -- largely unregulated investment pools traditionally for the wealthy that have become popular with small investors in recent years.

The high-risk, potentially high-return funds have an estimated $750 billion to $1 trillion in assets and are growing. Oversight is needed to head off potential blowups that could hurt ordinary investors, SEC officials say.

The SEC commissioners also were voting at the meeting to formally adopt the requirement that most hedge fund managers register with the agency.

The hedge fund move will open the funds' books to SEC examiners and make them subject to an array of regulations including accounting and disclosure requirements. The agency could, for example, conduct inspection "sweeps" of groups of hedge funds, something it now lacks legal authority to do.

The move split the commissioners in a 3-2 vote proposing it in July, with SEC Chairman William Donaldson and the two Democratic commissioners opting for stricter regulation of hedge funds while the two Republican members opposed it. The same SEC divide remains, Federal Reserve Chairman Alan Greenspan and Treasury Secretary John Snow also oppose tighter regulation, and industry opponents are hinting at legal challenges.

The quiet period preceding Google Inc.'s anxiously awaited IPO last summer became noticeably noisier when company founders Sergey Brin and Larry Page gave an interview published in Playboy magazine, a potential violation of the SEC rules. The SEC resolved the problem by ordering Google to amend its prospectus by adding the interview to it.

Rather than slapping the search engine company with sanctions, the SEC may have figured that given the huge publicity surrounding the IPO after the registration statement was filed in April, so much already had been written about Google that the Playboy interview didn't perceptibly change things.

In another instance, the SEC cracked down on Salesforce.com last May when the company's CEO, Marc Benioff, cooperated with an article published in The New York Times. After the piece appeared, the agency forced the company to delay its high-profile IPO. The IPO was completed six weeks after the story was published.

Securities and Exchange Commission: http://www.sec.gov

http://biz.yahoo.com/ap/041026/sec_quiet_period_6.html