Although "quiet period" rules for IPOs will ease by the end of the year, companies pursuing public offerings may still find themselves muzzling their chatty executives ahead of the market debut.
At the end of June, the Securities and Exchange Commission approved changes in rules surrounding US securities offerings, including initial public offerings. The rules, which go into effect December 1, are designed to ease communication between issuing companies, underwriters and investors.
But the changes do not mean executives are free to pick up the phone and start gabbing to the press.
"It's not as dramatic as a lot of people might have hoped from some of the things that you've read in the media," said John White, a partner in the securities practice at Cravath, Swaine & Moore LLP.
The so-called "quiet period" in place now was designed to keep a company from hyping its stock or disclosing details about itself not contained in its prospectus ahead of its IPO.
Regulators have not hesitated to crack down on companies disobeying the rules. Last year software services company Salesforce.com Inc delayed its IPO after its chief executive was featured in a New York Times article before the company's scheduled public debut.
And Google Inc drew regulatory scrutiny after its founders were interviewed for a Playboy magazine article that was published shortly ahead of its highly anticipated IPO.
Currently, some lawyers counsel companies to stop talking to the media the instant they decide to pursue an IPO, worried that any published comments could be construed as hyping the deal.
Under the new rules, executives will be freer to discuss their business with reporters ahead of the IPO filing.
"You can now talk about your company as long as the interview is published more than 30 days before you file and you don't mention the offering," White said.
But during the 30 days before filing for an IPO, a company will still fall under a strict "quiet period," and lawyers expect companies to continue, just as now, to avoid appearing in printed articles or on television during that time.
Once the filing happens, businesses will have more leeway in appearing in press articles, but they must closely watch what they say.
"After filing and until the offering, you can have media articles published, but you have liability on them," White said, referring to the issuing company. "You are liable for the accuracy of what you say and any related omissions."
That means lawyers may steer executives away from media interviews to avoid opening their companies up to lawsuits down the line, said Leslie Silverman, a partner in the capital markets group at Cleary Gottlieb Steen & Hamilton LLP.
"It's just like any cost benefit analysis," Silverman said. "The question is why take that risk? My answer to most clients is going to be: 'Don't take that risk'."
Lawyers said the rule changes will help avoid other Google-like scenarios, where an article appears in print after a company has filed for an IPO but before the offering happens, putting the IPO in jeopardy.
In the future, if an article does get published in that timeframe, an issuing company can file a copy of the article or a transcript of the interview with securities regulators.
"You will have the ability now, after December 1, to say 'Maybe I goofed'," Silverman said. But that goof can be covered by a regulatory filing of the article, rather than having to go through a "cooling-off" period that has delayed numerous IPOs in the past.
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