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Packaged with long-awaited reforms making it easier for corporations to tap capital markets, the Securities and Exchange Commission on Wednesday adopted a measure expanding what companies may say to the public and to investors during the 30-day “quiet period” before a stock offering. Commissioners voted 5-0 to adopt a relatively uncontroversial quiet-period rule that allows executives to provide basic information about their businesses and management philosophies in media interviews or on their Web sites. Issuers will remain barred from providing much forward-looking information during the pre-IPO period, but many agree that the new rule clarifies what has been a murky area. The rule, which has not been significantly revised since it was proposed in October, updates a 1930s-era regulation. Large, established companies get the most relief under the new rule, which permits them to tap markets at will and communicate freely. With the new rule in place, “companies in registration can speak as often or as loudly as they like, while the liability provisions of the securities rules ensure that they are held accountable for any material misstatement that they may make,” SEC Commissioner Roel Campos said at the agency’s meeting. Regulators have traditionally been very careful about allowing companies to say much during the quiet period, fearing that the more they disclose, the more they are likely to somehow mislead investors. But even with more communications freedom, companies will remain liable for “material misstatements or omissions” made before an issue, according to the rule adopted Wednesday. Underwriters and others who participate in public offerings will be liable for misleading statements in prospectuses only if they use them or refer to them. Shareholders or the SEC can sue a company that makes bad-faith claims or provides inaccurate historical data about itself. The agency could also delay an IPO if it feels the issuer is not providing balanced information. “Well-known, seasoned” companies — those that have market capitalizations of at least $700 million and have been public for more than a year — will have more latitude than smaller concerns in what they can disclose before secondary or follow-up offerings. They will be able to describe offerings using materials other than a prospectus. But smaller public companies, in varying degrees, will be more flexible in what they can communicate to the public and prospective investors. Commissioner Cynthia Glassman noted that the rule requires the SEC to reconsider defining “well-known” issuers in three years. “We need to always look at this stuff,” she said. The proposed rule received greater scrutiny after Google Inc.’s $1.7 billion IPO was nearly postponed last year after the SEC took an extended look at an interview the company’s founders did with Playboy magazine shortly before the Internet search giant’s market debut. In addition to the quiet-period reforms, the SEC approved measures intended to make it easier for corporations to raise money through capital markets. One measure that many considered long overdue allows companies to deliver prospectuses over the Internet rather than through the mail, speeding access to the market. SEC rules previously required stockbrokers to confirm that final prospectuses were physically delivered to potential investors before the securities were sold. Under the new rule, the SEC will let companies planning issues to post a prospectus on a government or investment-bank Web site. Companies could then inform interested buyers that the prospectus is available online by sending them an e-mail or by issuing a press release. Delivering documents electronically would let investors buy new issues immediately after the SEC approves the prospectus rather than waiting the typical three to five days it takes for it to arrive in the mail. The agency also provided some clarity on liability. According to the rule, a statement to an investor made prior to or at the time of a sale that is misleading carries liability — whether it was made by the issuing company or by an underwriter. The provision was made partly in response to a 2003 ruling by the 5th U.S. Circuit Court of Appeals in New Orleans that in some circumstances where an underwriter makes misleading statements, the issuer is not liable. “The seller includes the company regardless of the underwriting method,” said Michael McCoy, associate at Bryan Cave in Phoenix. The rule adopted Wednesday is the culmination of several years’ work by SEC division of corporation finance chief Alan Beller, who was recruited by then-Chairman Harvey Pitt to work on the proposal. (Before coming to the SEC, Beller signed a letter supporting a series of proposals by the business-law section of the American Bar Association that formed the basis for the rule.) But Beller and the SEC put capital-markets reform on hold after the Enron Corp. scandal forced the agency to concentrate on its oversight responsibilities. The effort remained on the back burner as securities regulators promulgated and implemented antifraud rules in the Sarbanes-Oxley Act. Wednesday’s approval came one day before the agency’s chairman, William Donaldson, steps down. A prior SEC effort to amend securities rules, dubbed the “aircraft carrier” because of its size and complexity, was derailed four years ago by fears that some of its provisions could make it harder for companies to raise capital. But many of the expected communications provisions introduced at that time by former SEC corporate finance division chief Brian Lane are incorporated in the rule adopted Wednesday. “We would not be here today if [Lane] had not done that,” Beller said. Wednesday’s rule “is very good news for all participants in the process, issuers underwriters and investors,” Lane said. “This is an important milestone, but this isn’t the final chapter of securities act reform.” Lane said he expects the agency eventually to allow more public companies the same communications freedom that well-known seasoned issuers have. The agency will also begin work soon on expanding what companies are permitted to say or advertise on Web sites or in other communications when making private placements, securities sales sold directly to sophisticated investors. Copyright �2005 TDD, LLC. All rights reserved.

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