I don’t know when Congress decided that every piece of legislation had to have a nifty acronym, but the House Financial Services Committee recently passed (on a partisan basis) what old-fashioned TV ads might have called the new, improved version of the “Financial CHOICE Act”.  The word “choice” is in solid caps because it stands for “Creating Hope and Opportunity for Investors, Consumers and Entrepreneurs”.

Whether and for whom it creates hope, opportunity or something else entirely may depend upon your perspective, but whatever else can be said of the Act, it is long (though at 589 pages, it is slightly more than half as long as Dodd-Frank), and it addresses a very broad swath of issues.  Here’s what it has to say about some key issues in disclosure, governance and capital formation, along with some commentary. Continue Reading The Financial CHOICE Act – everything you’ve ever wanted, and more?

This posting is a reprint of an article, co-authored by Bob Lamm and David Scileppi, that appeared in the Daily Business Review on July 15, 2016.    

Recent months have been difficult for the initial public offering market. In fact, year-to-date, IPOs are down nearly 60 percent compared to last year. One of the bright spots in this IPO down market has been Sensus Healthcare Inc., a Boca Raton-based medical device company.


We are proud to have worked with Sensus Healthcare on its IPO, which priced on June 2; Sensus is now listed on NASDAQ under the SRTSU symbol.

Though we’ve worked on numerous offerings over the course of our careers, the Sensus transaction reminded us of some key things that companies should consider as they proceed toward an IPO. Continue Reading Top Five Considerations in a Challenging IPO Market

Two news items from the front lines:

First, you may recall my mentioning that the Council of Institutional Investors was considering adopting a new policy that would limit newly public companies’ ability to include “shareholder-unfriendly” provisions in their organizational documents (see “Caveat Issuer“, posted on February 13).  I just came back from Washington, DC, where I attended the Council’s Spring Meeting, and the new policy appears to have been adopted as proposed.  While the text of the new policy was not made available at the meeting, and has yet to be posted on the Council’s website, it appears to provide that while some of these provisions can be in place when a company goes public, others — such as plurality voting for directors in uncontested elections — should be absent from the get-go.

By the way, my hotel room had a lovely view of the Jefferson Memorial, and the cherry blossoms were about to pop.

In other news, the SEC has announced, by way of a Sunshine Act Notice, that at an open meeting to be held on March 30 it “will consider whether to issue a concept release seeking comment on modernizing certain business and financial disclosure requirements in Regulation S-K”.  Looks like the disclosure effectiveness program may be moving forward.  Watch this space for details.


Despite the wave of corporate governance reform that began after the enactment of Sarbanes-Oxley in 2002 – and that continues pretty much unabated today – companies going public have gotten a pass. Whether the process of going public takes the form of a spin-off or a conventional IPO, newly public companies have been able to emerge into the world with a full (or nearly full) arsenal of defensive weapons that can help them stave off an unwanted acquisition.

The rationale for this leniency is that newly public companies are like tadpoles that need to be given time to turn into frogs (or princes) before they are gobbled up.

That seems to be changing.

Continue Reading Caveat issuer

I’ve done my share of griping about the SEC, but credit needs to be given where credit is due. And credit is due to the SEC for adopting a new, improved version of Regulation A that has become known as “Reg A+”. (OK, we can gripe about how long it took the SEC to adopt the final rule, but let’s be gracious and remember that justice delayed isn’t necessarily justice denied.)

Reg A has been around forever, but has been used very infrequently. Like many other long-time SEC practitioners, I’ve never done a Reg A deal. There are many reasons for this, but the big one is that Reg A limited the maximum amount of an offering to $5 million – hardly enough to justify the costs involved (which included compliance with Blue Sky laws). Then Reg D came along, as well as the amendment of Rule 144 reducing the amount of time that an investor had to hold “restricted securities,” and the rest is history.

The JOBS Act called for the SEC to review and update Reg A, and they’ve done an A+ job – all puns intended. Here are some key provisions of Reg A+ Continue Reading A high mark (would you believe an A+?) for the SEC

HR 3623 does not provide relief
The Great Flood of 1927 by Gil Cohen

In recent weeks, a bill has been reported out of the House Committee on Financial Services promising relief to companies going public.  While I applaud their intentions, this bill will not have much impact, and if anything, is a solution to problems that don’t exist.

On March 14, 2014, the House Committee approved 56-0, a bill titled “Improving Access to Capital for Emerging Growth Companies Act (H.R. 3623).  This purported bipartisan “relief” doesn’t actually provide that much real relief to public companies.  This proposed bill has four major goals.  First, it shortens the period of time that an emerging growth company must publicly file its registration statement before commencing its road show from 21 days to 15 days.  Second, if an issuer loses its emerging growth company status during the registration process, it will be allowed to register as if it had remained an emerging growth company.  Third, an emerging growth company will not be required to include in its registration statement certain historical financial information if the registration statement would be required to be updated to include more recent financial information prior to the registration statement going effective.  And fourth, emerging growth companies will be permitted to submit confidentially registration statements for follow on offerings for up to one year after its initial public offering.

Only one of the goals of HR 3623 is arguably helpful.  In the unusual situation where an issuer was just under $1 billion in revenue when submitting its registration statement and then, due to revenue growth, would no longer qualify as an emerging growth company, it can keep the “benefits” of being an emerging growth company.  It would seem unfair for the issuer to have to lose its status mid-stream, but I don’t know how many issuers this would actually help.

All of the other provisions of HR 3623 are not helpful.  First, not having to include financial information that would otherwise not be required in the final version of the prospectus can reduce some burden of going public; however, because most emerging growth companies voluntarily provide three years of financials rather than two (as permitted) to avoid being perceived as not a “real” public company, this provision is rather meaningless.

Second, shortening the time from which an issuer must publicly file its registration statement until it can commence its road show from 21 days to 15 days will likely be, in practice, meaningless, and potentially dangerous to investors.  There is real value in having the financial press and the public review the public filings of a company going public.  The more people who review the filings, the greater the likelihood that problems with the issuer’s business model or financial statements are discovered.  Most reputable investment banks will likely continue to wait at least three weeks prior to commencing the road show for this reason.

Third, I see very little value in providing an emerging growth company the ability to submit confidentially registration statements for follow on offerings.  The entire value of submitting confidentially is that an issuer can decide not to register its securities before it makes its information publicly available.  In a follow on offering, the issuer will already have made its information public through its initial registration statement and its subsequent periodic reports.

My recommendation is that if Congress truly wants to increase the number of public companies then it should reduce the disclosure obligations of public companies by extending permanently (rather than the current five year maximum benefit) the streamlined disclosure for emerging growth companies (and having it apply to all issuers) and make it more difficult for plaintiffs to recover damages from public companies in securities litigation.  The disclosure burden and litigation risk are contributing much more to the cause of companies not going public than what this bill is attempting to address.

Where to list NYSE or Nasdaq?These are interesting times for technology companies that are contemplating initial public offerings. For companies of sufficient size, the exchange for the listing of their securities generally comes down to the New York Stock Exchange and the Nasdaq Stock Market. The NYSE has historical prestige and a long track record, while the Nasdaq has cultivated a progressive, tech-friendly reputation. If you are a high visibility technology company, you will probably find these exchanges actively competing for your listing. Such benefits as free advertising have been used, and business deals involving a company’s services may influence a company’s decision as to which exchange to list its securities. For example, Oracle’s switch to the NYSE from Nasdaq was reportedly in part due to an agreement by the NYSE to continue to use Oracle software in its operations.

Nasdaq has long been the favorite exchange for the listing of technology company offerings. This was probably due to the initial progressive use of automation and electronics in this exchange’s early operations which resonated with technology company executives. Rather than traders waving pieces of paper (the historical process at the NYSE), Nasdaq pioneered the use of electronic quotation boards and other advanced methods in its operations. Nasdaq was willing to list the offerings of smaller companies and was also cheaper than the NYSE. All of these factors allowed Nasdaq to build a reputation as the technology companies’ preferred exchange. This reputation was fostered and supported by the listing of a large number of technology companies, including big hitters like Apple and Microsoft.

Nasdaq’s role as the preeminent exchange for technology companies has been diminished. One of the major blows for this exchange was Continue Reading Stock exchanges compete for technology company IPO listings – Twitter chooses NYSE, but who’s really winning?

The next big tech IPO is in the works. Twitter, the hugely popular short message social media site, announced last week that it has filed a Form S-1 registration statement with the SEC in connection with the company’s proposed initial public offering. This IPO has been rumored and anticipated for some time, and it will generate substantial interest among members of the tech and investment communities. This offering may not have the impact of last year’s Facebook IPO, but it will be close.

Twitter appropriately announced its planned IPO in a tweet on September 12:

Twitter announces IPO in tweet

(followed by a “get back to work” tweet):

Twitter IPO

This offering should proceed more smoothly and productively than the ill-fated Facebook IPO. The various participants in the IPO process learned a lot from the significant problems that the Facebook IPO encountered, and in some cases these lessons were driven home by significant monetary penalties (See my prior blog post regarding the Facebook IPO and its problems). No one wants a repeat of that situation, especially with such a high profile IPO. Twitter has also always impressed me as a more thoughtful and rational company than some in the tech space, and this should carry through in their IPO.

In its IPO filing process Twitter took advantage of one of the key available provisions of the JOBS Act. Section 6(e) of the Securities Act allows an “emerging growth company” to file an IPO registration statement on a confidential basis. This provision is designed to give the company and the SEC time to identify and work through potential problem areas or issues before investors see any information. It also allows companies to keep material nonpublic information confidential until late in the SEC review process. If the company decides not to proceed with its IPO, it has avoided the public disclosure of this information. If the company and the SEC can work out these problems and issues satisfactorily, the registration statement (amended as necessary) eventually becomes available to the public and the IPO process goes forward. This should make the registration process very quick and efficient after it emerges from the initial SEC review.

This confidential filing opportunity has been popular with emerging growth companies. According to an Ernst & Young JOBS Act study, approximately 63% of eligible companies used this process during the first year of its availability under the JOBS Act. The SEC has published a set of helpful FAQ’s which clarify many components of this confidential filing process.

Twitter added one interesting change to this Continue Reading Twitter announces its IPO in a tweet

Nasdaq pays record fine for Facebook IPOMay 29, 2013 was a bad day at the office for The Nasdaq Stock Market, LLC as it agreed to pay a $10 million fine to settle allegations arising from the troubled May 18, 2012 Facebook IPO. This payment was announced by the SEC in a press release which was highly critical of Nasdaq management and its role in this IPO. This was the largest fine ever assessed against an exchange. This fine was a clear message to the securities exchanges to focus on their systems and processes and ensure that they are ready to successfully run transactions like the Facebook IPO. 

The SEC also issued an Administrative Order that describes the Facebook IPO and Nasdaq’s mistakes and securities law violations in detail. The Order also describes several instances where Nasdaq violated its own policies during the IPO. It is clear from this Order that the SEC is angry about the problems with the Facebook IPO and that it holds Nasdaq management responsible. The SEC is very concerned with future offerings and the ability of exchanges to manage them as the size, velocity and complexity of the offerings continues to increase. The SEC confirms that it is the responsibility of an exchange’s management to anticipate the problems that occur in these offerings and to have systems in place that can handle them. It is no longer sufficient to blame these problems on “technical glitches”, especially when so much money and credibility are at stake. The Order also censured Nasdaq and its affiliate, Nasdaq Execution Services, LLC. Matt Phillips has a nice summary of these Facebook IPO problems and the SEC Order on his blog. 

The Nasdaq’s actions before and during the Facebook IPO have been roundly criticized by commentators and industry experts and now by the SEC. Nasdaq management conducted system tests prior to the Facebook IPO, but the extent of these tests was woefully inadequate. They conducted tests using 40,000 orders, but almost 500,000 orders were waiting when the Nasdaq opened trading in Facebook stock. This huge volume of advance orders and the continuing high volume of orders quickly overwhelmed the exchange’s systems. In response to these numbers and panicked calls and emails from brokers (who apparently had no idea of how many shares they had purchased or their actual exposure), Nasdaq management held a “Code Blue” emergency call and made a few software adjustments which they thought would fix the problems. These adjustments did not work, however, and brokers continued to panic. Nasdaq management finally discovered that about 30,000 Facebook orders that had been placed earlier in the day had never been executed. Many of these shares were then sold into the open market, which depressed the stock price until brokers stepped in to help support it. Facebook shares were priced at $38.00 at the start of the IPO but closed that day at $38.23. This was a major disappointment, and the stock price has significantly retreated from that level. Facebook’s most recent price was Continue Reading The SEC gets tough – Nasdaq to pay record $10 million fine to settle Facebook IPO allegations