Silent Initial Public Offering

The Jumpstart Our Business Startups Act (“JOBS Act”) has created what is known as the Confidential Initial Public Offering (“IPO”), also referred to as the “quiet” or “silent” IPO.

As part of the JOBS Act, this option is available only to smaller companies called Emerging Growth Companies (“EGCs”). EGCs are companies that have annual revenues of $1 billion or less.

EGCs that qualify and choose to go public by means of a Confidential IPO can work with the SEC without being exposed to public scrutiny for a certain time period.

A company doing typical IPO has to file with the SEC several months before it conducts its roadshow and markets its shares, but an EGC pursuing a Confidential IPO only has to file three weeks before it conducts its roadshows.

When EGCs do file with the SEC, the registration drafts and correspondence can be kept private. Once public registration statements are filed, which are done with either type of IPO, the previously private documents are then attached as exhibits and can be viewed by the public.

The JOBS Act also allows more relaxed financial reporting for ECGs such as no requirement for reporting executive compensation and a 5-year “free pass” on the onerous Sarbanes-Oxley requirements. These exemptions are tied to the company’s status as an ECG, however, and not necessarily tied to the Confidential IPO process.

Is a Confidential IPO beneficial?  It is still unclear.  We do know that it is popular.  A study that surveyed IPOs during the first year after the JOBS Act found that 75% of companies that conducted an IPO chose the Confidential IPO option.

FINRA REPORTS ON POTENTIAL IMPLICATIONS OF BLOCKCHAIN; SEEKS COMMENT

Distributed ledger technology (DLT), better known as blockchain, has garnered significant interest in the securities industry, with many market participants indicating a desire for increased regulatory engagement as they explore the technology and its possible applications. In response, the Financial Industry Regulatory Authority (FINRA) today issued a report that discusses the use and implications of DLT in the securities industry. The paper also seeks comments as part of an effort to obtain feedback on any challenges associated with the use and implementation of DLT.

“Over the past couple of years, FINRA has actively engaged with market participants to monitor developments related to DLT and its potential impact in the securities industry,” says the report, from FINRA’s Office of Emerging Regulatory Issues. FINRA believes this early collaboration “will allow the industry to reap the benefits of the technology, while ensuring protection of investors and maintenance of market integrity.”

The paper, which is intended to be FINRA’s initial contribution to an ongoing dialogue with market participants about the use of DLT, provides an overview of the technology, highlights key applications and discusses implementation and regulatory considerations for broker-dealers. Among the applications addressed are those being used or tested in the equity, debt and derivatives markets, as well as shared utilities.

FINRA, the Financial Industry Regulatory Authority, regulates all securities firms doing business in the United States. FINRA is dedicated to investor protection and market integrity through effective and efficient regulation and complementary compliance and technology-based services. FINRA touches virtually every aspect of the securities business – from registering and educating all industry participants to examining securities firms, writing rules, enforcing those rules and the federal securities laws, and informing and educating the investing public. In addition, FINRA provides surveillance and other regulatory services for equities and options markets, as well as trade reporting and other industry utilities. FINRA also administers the largest dispute resolution forum for investors and firms.

SEC PROPOSES AMENDMENTS TO SMALLER REPORTING COMPANY DEFINITION

The Securities and Exchange Commission voted to propose amendments that would increase the financial thresholds in the “smaller reporting company” definition.  The proposal to update the definition would expand the number of companies that qualify as smaller reporting companies, thus qualifying for certain existing scaled disclosures provided in Regulation S-K and Regulation S-X.

“Raising the financial thresholds in the smaller reporting company definition is intended to promote capital formation and reduce compliance costs for smaller companies while maintaining important investor protections,” said SEC Chair Mary Jo White. “The Commission will benefit greatly from the public comments we receive from investors, issuers and other affected market participants on today’s proposal, as well as comments we receive on the Regulation S-K concept release, which will help inform any changes to the scaled disclosure system or other changes to our disclosure requirements.”

Smaller reporting companies may provide scaled disclosures under the Commission’s rules and regulations.  The proposed rules would enable a company with less than $250 million of public float to provide scaled disclosures as a smaller reporting company, as compared to the $75 million threshold under the current definition.  In addition, if a company does not have a public float, it would be permitted to provide scaled disclosures if its annual revenues are less than $100 million, as compared to the current threshold of less than $50 million in annual revenues.

In addition, as in the current rules, once a company exceeds either of the thresholds, it will not qualify as a smaller reporting company again until public float or revenues decrease below a lower threshold.  Under the proposal, a company would qualify only if its public float is less than $200 million or, if it has no public float, its annual revenues are less than $80 million.

The Commission is not proposing to increase the $75 million threshold in the “accelerated filer” definition.  As a result, companies with $75 million or more of public float that would qualify as smaller reporting companies would be subject to the requirements that apply currently to accelerated filers, including the timing of the filing of periodic reports and the requirement that accelerated filers provide the auditor’s attestation of management’s assessment of internal controls over reporting required by Section 404(b) of the Sarbanes-Oxley Act of 2002.

Free Initial Consultation with IPO Lawyer

If you need help with an IPO in Utah, call Ascent Law for your free consultation (801) 676-5506. We want to help you.