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In Rule Reversal, SEC to Let Firms Promote Stocks, Bonds Before IPOs

June 30, 2005|From Bloomberg News

The Securities and Exchange Commission agreed Wednesday to allow companies to promote their stocks and bonds ahead of public sales, seeking to make more information available to prospective investors.

The SEC's five commissioners voted unanimously to let company executives talk about their operations in addition to distributing prospectuses before the sale. The old rule, intended to protect investors from hyped advertising of securities, dated from 1933.

Under the old rule, investors had trouble getting more information because companies weren't allowed to give them anything other than documents on the offering. Google Inc. found out just how serious the SEC was about enforcing the regulation when its initial public offering in August was almost derailed after Playboy magazine published an interview with the company's founders.

Google spokesman Mike Mayzell declined to comment.

"It's good for the company, it's good for the investment bankers, it's good for the public as it seems there won't be an information vacuum," said Clay Corbus, co-chief executive at San Francisco-based investment bank WR Hambrecht & Co., which advised Google on its auction based-IPO.

WR Hambrecht also helped underwrite the $19.3-million IPO of blood coagulation monitor maker HemoSense Inc. and included in the prospectus the slides and explanations of the presentations HemoSense made to institutional investors.

"The package that we consider today will modernize the securities offering and communication process while maintaining investor protection," SEC Chairman William H. Donaldson said at Wednesday's meeting in Washington. "Investors are entitled to information at the point they commit to purchase a security."

The reforms brought the capital markets into line with modern technologies, including the Internet, Donaldson said.

"This may be an acknowledgment by the SEC of the way real world communications now work," said Frederick C. Lane, chief executive of Boston-based advisory and underwriting firm Lane, Berry & Co. International. "Trying to monitor all the communications out there is next to impossible."

Any public statement permitted under the new rule must be accurate and not misleading, matching the legal standard that applies to a company's prospectus. Executives may speak to the media, as in Google's Playboy interview, provided they file a copy of the remarks with the SEC.

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