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SEC eases pre-offering ‘quiet period’ rules

June 29, 2005

WASHINGTON (Reuters) – Companies selling stock to thepublic will be allowed to talk more freely under a ruleapproved on Wednesday in a unanimous vote by the U.S.Securities and Exchange Commission.

Moving to overhaul 1930s-era rules against misleading hypein stock offerings, the SEC voted to largely drop the so-called”quiet period” preceding offerings for very large companies.

The SEC said the new rules are meant to reflect the greatlyexpanded volume and scrutiny now given stock offerings with theemergence of electronic communications and the widerinvolvement of Americans in the markets.

The new rules will let large corporations with records ofwell-managed stock offerings discuss — and in somecircumstances even advertise — new offerings.

Top-tier companies would also be allowed to make so-called”shelf registrations” of stock with less paperwork. Shelfstock, which companies register with the SEC before issuing,could also be brought to market more easily.

Limits on companies making initial public offerings, orIPOs, would also be eased and clarified, with permissiblepublic communications spelled out more clearly, the SEC said.

Balanced against these new freedoms would be rules holdingcompanies liable for misstatements or omissions of key factsfrom interviews, ads or other communications outsidetraditional SEC filings for an offering, the commission said.

The SEC also voted unanimously to adopt rules to determarket abuse of so-called “shell companies,” or incorporatedentities with no operating business.

The new SEC rules are aimed at preventing fraudsters fromusing shells, often through “reverse acquisition” deals, totake private companies public without disclosing theinformation required in normal registered stock offerings.

The new stock offering rules create a class of “well-knownseasoned issuers,” or companies with market capitalization ofabout $700 million or more, or $1 billion in registered debtover the preceding three years. Penny-stock companies, shellcompanies and companies with legal trouble would generally beexcluded from the new class, the SEC said.

The new rules also ease restrictions on companycommunications with the press prior to offerings. “One of thepurposes … is to allow greater communications through themedia,” said Alan Beller, director of the SEC Division ofCorporation Finance.




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