June 29, 2005

SEC eases stock offering ‘quiet period’ rules

WASHINGTON (Reuters) - Companies selling stock to thepublic will be allowed to talk much 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 andto clarify what can be said about initial public offerings.

Under the old rules, last year's IPO by Internet searchengine group Google Inc. was nearly delayed after itsfounders gave an interview to Playboy magazine. Earlier in2004, Salesforce.com Inc. had to delay its IPO afterits chief executive was featured in a newspaper article.

The new pre-offering rules will let large corporations withrecords of well-managed stock offerings discuss -- and in somecircumstances even advertise -- new offerings, the SEC said.

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

"The changes to the offering process should substantiallylower the cost of raising capital," said SEC Commissioner RoelCampos at an open meeting of the market-regulating commission.

Limits on companies in IPOs are eased under the new rules,with permissible communications spelled out more clearly.

The new rules ease restrictions on company communicationswith the press prior to offerings. "One of the purposes ... isto allow greater communications through the media," said AlanBeller, director of the SEC Division of Corporation Finance.

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' freedoms are balanced by regulations holdingcompanies liable for misstatements or omissions of key factsfrom interviews, ads or other communications outsidetraditional SEC filings for an offering, the commission said.

"This rulemaking represents the SEC's ability toderegulate, as well as regulate," said Commissioner HarveyGoldschmid.

The new 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 are generallyexcluded from the new class, the SEC said.

The SEC also voted unanimously to adopt rules to determarket abuse of shell companies, or incorporated entities withno operating business.

The new SEC rules are aimed at preventing fraudulent use ofshells, often through "reverse acquisition" deals, to takeprivate companies public without disclosing the informationrequired in normal registered stock offerings.