Shareholder Power to Initiate by niusheng11

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									Gun-Jumping Rules


  Post-effective period
  • Going effective
  • “Prospectus delivery”
  • Updating prospectus


                      (last updated 16 Feb 09)
                       Gun-Jumping
           (controlled disclosure during registration)

                 Filing                Effective
                 date                    date

          No sales [§ 5(a)(1)]

       No deliveries [§ 5(a)(2)]

                      No prospectus, unless comply § 10 [§ 5(b)(1)]
                                                No delivery w/o
                                           §10 prospectus [§ 5(b)(2)]
 No offers [§ 5(c)]
                      No offers - §8 proceeding / stop order [§ 5(c)]
Pre-filing period         Waiting period      Post-effective period
                       Hypothetical #1
Although Smartway (the online last-
minute ticket marketer) has no
analysts following it, word of its IPO
gets around.

Lan, a reporter for the Wall Street
Journal, hears of the Smartway IPO
and writes about Smartway’s IPO as
part of a story on high-flying IPOs.
(Nice coverage!) The story includes
projections of Smartway’s future
profitability.

Any gun-jumping?
Securities Act § 2(a)(3)

  The term "sale" or "sell" shall include every
  contract of sale or disposition of a security or
  interest in a security, for value. The term
  "offer to sell", "offer for sale", or "offer" shall
  include every attempt or offer to dispose of, or
  solicitation of an offer to buy, a security or
  interest in a security, for value. …
Securities Act § 4

    The provisions of section 5 shall not
    apply to--

    (1) transactions by any person other
    than an issuer, underwriter, or dealer.
                        Hypothetical #2
Lavina, a research analyst for
Silverman Brothers, writes a
research report on Smartway,
giving the company’s IPO a
“neutral” recommendation.

Silverman, which is not
participating in the Smartway
IPO, publishes Lavina’s report –
and sends it to its own brokers,
and its retail and institutional
clients. It’s the first time it said
anything about Smartway.


Any gun-jumping?
Securities Act § 5
(b) Necessity of prospectus meeting
    requirements of section 10 of this Act. It
    shall be unlawful for any person, directly or
    indirectly--

       (1) to make use of any means or
       instruments of transportation or
       communication in interstate commerce or
       of the mails to carry or transmit any
       prospectus relating to any security with
       respect to which a registration statement
       has been filed under this title, unless such
       prospectus meets the requirements of
       section 10; or

Securities Act § 2(a)(10)
   The term "prospectus" means any
   prospectus, notice, circular, advertisement,
   letter, or communication, written or by radio or
   television, which offers any security for sale
   or confirms the sale of any security;
Securities Act § 4
    The provisions of section 5 shall not apply
    to--

     (1) transactions by any person other than
     an issuer, underwriter, or dealer.
     (3) transactions by a dealer … except when
     selling or offering securities in the post-
     effective period]

Securities Act § 2(a)(11)
    The term "underwriter" means any person
    who has purchased from an issuer with a
    view to … the distribution of any security,
    or participates or has a direct or indirect
    participation in any such undertaking, …

Securities Act § 2(a)(10)
    The term "dealer" means any person who
    engages … as agent, broker, or principal, in
    the business of offering, buying, selling, or
    otherwise dealing or trading in securities
    issued by another person.
Rule 137 (exemption from definition of “offer”
   and “participates” as underwriter)

   A securities firm not participating in the
   distribution may publish research report on
   securities in registration if:

   (1) the securities firm has received no special
   compensation related to the distribution.

   (2) the recommendation is in the regular
   course of the firm's business [compare this to
   Rule 139, which prevents participating
   securities firm to initiate coverage of issuer]
                        Hypothetical #3
Grace is a research analyst at Sparrow
Securities, the managing UW for
Smartway’s IPO.

Grace writes a research report on
Smartway giving it a “buy” recommendation.
(Sweet!) Sparrow publishes a summary of
her report with the buy recommendation in
its monthly newsletter sent out prior to the
effective date of the IPO. Previously,
Sparrow had not covered Smartway.

Any gun-jumping?
Rule 139 (exemption from defn of “offer”)

   A securities firm that participates in the
   distribution may issue a report recommending
   the securities either:

   (1) issuer-specific: issuer is seasoned
   reporting company eligible for Form S-3 or
   WKSI, or

   (2) industry reports: issuer is reporting
   company, and the recommendation is
   included in a report that includes other
   securities, receives no special prominence, is
   part of the securities firm’s regular business,
   and issuer has been in similar reports.
Free writing prospectus (Rule 164)
•   allows free writing prospectus (FWP),
    deemed to satisfy §10(b) if Rule 433
    conditions satisfied
•   available to issuer, UW or participant

Conditions (Rule 433)
•   info may not conflict with RS or SEC filings,
•   FWP must be legended (read prospectus,
    how obtain)
•   must be accompanied by (or linked to)
    preliminary/final prospectus (only applies to
    non-reporting and unseasoned issuers)
•   must file with SEC (on date of first use)
     – issuers must file FWP and issuer info (press
       interview)
     – participants must file FWP that is “broad
       unrestricted dissemination”
How does RS become effective?
                            Going effective
Section 8(a) Effective date of
   registration statement

   Except as hereinafter provided, the
   effective date of a registration
   statement shall be the twentieth
   day after the filing thereof or such
   earlier date as the Commission
   may determine, …. If any
   amendment to any such statement
   is filed prior to the effective date of
   such statement, the registration
   statement shall be deemed to have
   been filed when such amendment
   was filed;
                                             How can the SEC
                                             realistically review the RS
                                             in 20 days?
                        Going effective
Section 8(a) Effective date of         Rule 473 Delaying Amendment
  registration statement

  Except as hereinafter provided,      The registrant hereby amends this
  the effective date of a              registration statement on such date or
  registration statement shall be      dates as may be necessary to delay its
  the twentieth day after the filing   effective date until the registrant shall file
  thereof or such earlier date as      a further amendment which specifically
  the Commission may                   states that this registration statement shall
  determine, …. If any                 thereafter become effective in accordance
  amendment to any such                with section 8(a) of the Securities Act of
  statement is filed prior to the      1933 or until the registration statement
  effective date of such
  statement, the registration          shall become effective on such date as
  statement shall be deemed to         the Commission acting pursuant to said
  have been filed when such            section 8(a), may determine.
  amendment was filed;
When do investors get prospectus?
                     Prospectus delivery
Section 5(b) Necessity of
  prospectus meeting
  requirements of section 10 of
  this Act.

  It shall be unlawful for any
  person, directly or indirectly--

  (2) to carry or cause to be
   carried through the mails or in
   interstate commerce any such
   security for the purpose of sale
   or for delivery after sale, unless
   accompanied or preceded by a
   prospectus that meets the
   requirements of subsection (a)       You get prospectus only
   of section 10.                       with delivery of securities.
                                        Isn’t this a bit late?
                   Prospectus delivery
Rule 134(d): to obtain written      Section 2(a)(10): defines
  indication of interest, must send "prospectus" to include written
  preliminary prospectus            communication which confirms the
                                    sale of any security; except that a
Rule 15c2-8(b): participating       communication sent or given after the
  brokers must have sent            effective date shall not be deemed a
  investor prospectus at least 48 prospectus if it is proved that prior to
  hours before confirming sale      or at the same time with such
                                    communication a written prospectus
                                    meeting the requirements of
                                    subsection (a) of section 10 at the
                                    time of such communication was sent
                                    or given to the person to whom the
                                    communication was made,
                   Prospectus delivery
Rule 134(d): to obtain written      Section 2(a)(10): defines
  indication of interest, must send "prospectus" to include written
  preliminary prospectus            communication which confirms the
                                    sale of any security; except that a
Rule 15c2-8(b): participating       communication sent or given after the
  brokers must have sent            effective date shall not be deemed a
  investor prospectus at least 48 prospectus if it is proved that prior to
  hours before confirming sale      or at the same time with such
                                    communication a written prospectus
                                    meeting the requirements of
                                    subsection (a) of section 10 at the
                                    time of such communication was sent
                                    or given to the person to whom the
                                    communication was made,
How long does prospectus delivery
        requirement last?
  The provisions of section 5 shall not apply to …

Section 4(1): … transactions by      Section 4(3): … transactions by a
  any person other than an             dealer (including an underwriter
  issuer, underwriter, or dealer.      no longer acting as an
                                       underwriter) except–
Section 4(4): … brokers'
  transactions executed upon         (B) transactions … forty days [90
  customers' orders … but not           days for IPOs or shorter period
  the solicitation of such orders.      specified by SEC] after the
                                        effective date of such registration
                                        statement …
                                     (C) transactions as to securities
                                        constituting the whole or a part of
                                        an unsold allotment to … such
                                        dealer as a participant …
                                        or order.
  The provisions of section 5 shall not apply to …

Section 4(1): … transactions by      Section 4(3): … transactions by a
  any person other than an             dealer (including an underwriter
  issuer, underwriter, or dealer.      no longer acting as an
                                       underwriter) except–
Section 4(4): … brokers'
  transactions executed upon         (B) transactions … forty days [90
  customers' orders … but not           days for IPOs or shorter period
  the solicitation of such orders.      specified by SEC] after the
                                        effective date of such registration
                                        statement …
                                     (C) transactions as to securities
                                        constituting the whole or a part of
                                        an unsold allotment to … such
                                        dealer as a participant …
                                        or order.
  The provisions of section 5 shall not apply to …

Section 4(1): … transactions by      Section 4(3): … transactions by a
  any person other than an             dealer (including an underwriter
  issuer, underwriter, or dealer.      no longer acting as an
                                       underwriter) except–
Section 4(4): … brokers'
  transactions executed upon         (B) transactions … forty days [90
  customers' orders … but not           days for IPOs or shorter period
  the solicitation of such orders.      specified by SEC] after the
Rule 174:                               effective date of such registration
• Zero days for Exchange                statement …
  Act reporting issuer               (C) transactions as to securities
• 25 days for listed securities         constituting the whole or a part of
  on exchange or NASDAQ                 an unsold allotment to … such
• 40 days for all other                 dealer as a participant …
  offerings, except IPO                 or order.
• 90 days for IPO
How do underwriters and brokers selling
    allotment deliver prospectus?
  The provisions of section 5 shall not apply to …

Rule 172 (“access = delivery”)    Rule 173 (prospectus or notice)

Exemptions:                       Applicable to:
• Confirmation deemed not a       • Underwriters selling allotment
  “prospectus”under § 5(b)(1)     • Brokers selling allotment
• Prospectus delivery deemed      • Issuer selling directly
  met under § 5(b)(2)
                                    Requirements:
 Conditions:                        • not later than 2 business days
• RS effective                        after sale give investor final
                                      prospectus OR notice sale was
• No pending proceedings
                                      made pursuant to RS in which
• Issuer has filed final prospectus   prospectus required, absent
   [available on EDGAR] or will
   within 15 days after effective     exemption
   date (this condition not         • Investor may request prospectus
   necessary for brokers)
  The provisions of section 5 shall not apply to …

Rule 172 (“access = delivery”)     Rule 173 (prospectus or notice)

Exemptions:                        Applicable to:
• Confirmation deemed not a        • Underwriters selling allotment
  “prospectus”under § 5(b)(1)      • Brokers selling allotment
• Prospectus delivery deemed       • Issuer selling directly
  met under § 5(b)(2)
                                    Requirements:
 Conditions:                        • not later than 2 business days
• RS effective                        after sale give investor final
                                      prospectus OR notice that sale
• No pending proceedings
                                      was made pursuant to RS in
• Issuer has filed final prospectus   which prospectus required, absent
   [available on EDGAR] or will
   within 15 days after effective     exemption
   date (this condition not         • Investor may request prospectus
   necessary for brokers)
                         Hypothetical #4
Smartway’s IPO becomes effective on
June 1. One of the underwriters,
VillageBank was allocated 400,000
shares.

By June 3 VillageBank has sold all but
100,000 of its allocated shares.
VillageBank sells shares to Kevin and
with the confirmation mails a copy of the
final prospectus.

Delivery OK? And who cares if he gets a
prospectus now – it’s really too late for
Kevin! The prospectus merely lets him
know whether he bought a security or a
lawsuit.
Securities Act § 2(a)(10)

  The term "prospectus" means any
  prospectus, notice, circular, advertisement,
  letter, or communication, written or by radio or
  television, which offers any security for sale
  or confirms the sale of any security; except
  that (a) a communication sent or given after
  the effective date of the registration statement
  … shall not be deemed a prospectus if it is
  proved that prior to or at the same time with
  such communication a written prospectus
  meeting the requirements of subsection (a) of
  section 10 at the time of such communication
  was sent or given to the person to whom the
  communication was made,
                       Hypothetical #5
Smartway goes public and its shares
are listed on Nasdaq. Secondary
market trading follows.

A week later Marx Securities, a
securities dealer not participating in
Smartway’s offering, sells some of its
Smartway common stock inventory.

Marx mails stock certificates to
purchasing investors but does not send
a statutory prospectus

Delivery OK?
                       Broker-dealers
Section 5 applies to dealers     Rule 172 (“access = delivery”)
• selling from inventory and
                                 Exemptions:
  not acting as broker filling
                                 • Confirmation deemed not a
  customer orders                   “prospectus”under § 5(b)(1)
• subject to prospectus          • Prospectus delivery deemed met
  delivery requirements for         under § 5(b)(2)
  securities sold on NASDAQ       Conditions:
  (for 25 days from time of      • RS effective
  effectiveness)                 • No pending proceedings
                                 • Issuer has filed final prospectus
                                    [available on EDGAR] or will within
                                    15 days after effective date (this
                                    condition not necessary for
                                    brokers)
                       Broker-dealers
Section 5 applies to dealers     Rule 172 (“access = delivery”)
• selling from inventory and
  not acting as broker filling   Exemptions:
  customer orders                • Confirmation deemed not a
                                    “prospectus”under § 5(b)(1)
• subject to prospectus          • Prospectus delivery deemed met
  delivery requirements for         under § 5(b)(2)
  securities sold on NASDAQ      Conditions:
  (for 25 days from time of      • RS effective
  effectiveness)                 • No pending proceedings
                                 • Issuer has filed final prospectus
                                    [available on EDGAR] or will within
                                    15 days after effective date (this
                                    condition not necessary for
                                    brokers)

                                 Don’t forget Rule 173 notice!
                        Hypothetical #6
Villagebank issues an analyst report on
Smartway on June 10 – 9 days after the
effective date.

Villagebank still holds 50,000 shares from its
allotment. The report covers a number of
high-growth companies, including Smartway.
The report recommends Smartway as a “buy”
and talks glowingly about Smartway’s future
growth prospects.

Advise how Villagebank can send the report
to its customers.
Rule 139 (exemption from defn of “offer”)

  A securities firm that participates in the
  distribution may issue a report recommending
  the securities either:

  (1) issuer-specific: if issuer is a seasoned
  reporting company eligible for Form S-3 or
  WKSI, or

  (2) industry reports: if the issuer is a reporting
  company, and the recommendation is
  included in a report that includes other
  securities, receives no special prominence, is
  part of the securities firm’s regular business,
  and issuer has been in similar reports.
Securities Act § 2(a)(10)

   The term "prospectus" means any
   prospectus, notice, circular, advertisement,
   letter, or communication, written or by radio or
   television, which offers any security for sale
   or confirms the sale of any security; except
   that (a) a communication sent or given after
   the effective date of the registration statement
   … shall not be deemed a prospectus if it is
   proved that prior to or at the same time with
   such communication a written prospectus
   meeting the requirements of subsection (a) of
   section 10 at the time of such communication
   was sent or given to the person to whom the
   communication was made,
                        Hypothetical #7
Jack, a coffee importer from Brazil, decides
to purchase some Smartway stock on the
secondary market.

He contacts his broker, Joel, at Villagebank
and instructs him to purchase 1,000 shares
at the prevailing market price.

Joel executes the order for Jack on June 10,
sending him a written confirmation two days
later, but does not include the statutory
prospectus.

Confirmation OK?
Securities Act § 4(4):

The provisions of section 5 shall not apply to
  … brokers' transactions executed upon
  customers' orders … but not the
  solicitation of such orders

								
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