Recent SEC Guidance Allows More Private Offerings While Public Offering Registrations are Pending

Something else we learned at the PLI Securities Regulation Institute last week. Until recent interpretive guidance provided last summer by the SEC, if a public company had a pending registration statement under the Securities Act of 1933 (such as Form S-1 or F-1), the only safe way to raise money privately during that time was by offering to a small number of so-called “QIBs” (qualified institutional buyers) with significant assets, according to several leading “no-action letters” the SEC had previously published.

This caused many, including me in my book, to advise clients to make sure to raise all the money they need before putting in a registration, or consider a self-filing using Form 10, which is a Securities Exchange Act of 1934 filing and not subject to the restriction on raising money privately.

The new interpretive guidance, contained in the August 2007 Regulation D proposal (but effective upon the publication of the proposal), makes clear, essentially, that any otherwise legitimate private offering of securities may be able to move forward, even while a Securities Act registration is pending, so long as the investor was not solicited using the pending registration, and the investor was not directed to the company as a result of the pending registration. The actual language is more technical, and I urge you to consult with counsel in specific circumstances.

We are working on ways to organize documentation under the new guidance so that counsel would be able to give a legal opinion that the private offering indeed is exempt from SEC registration. The SEC staff members at the PLI conference made clear that this new guidance, to the extent inconsistent with past no-action letters, overrules and negates that old guidance.

This is truly very good news for private investors, including PIPE investors, who now have an opportunity to help fund a company even while they are working with the SEC on a pending Securities Act registration. Again to make it clear, even though the Regulation D proposal is still pending, the interpretive guidance noted above became effective upon release of the proposal.

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