Securities Law Blog

Currently, the staff of the Division of Corporation Finance of the SEC is operating with a skeleton crew and is not screening or reviewing registration statements.  So long as the partial government shutdown lasts, the SEC staff is not able to “accelerate” the effective date of registration statements.

For an issuer with a filed registration statement pending in the review process, it may be time for the issuer (together with its underwriters) to remove the delaying amendment on the cover page of its registration statement required by Rule 473(a) under the Securities Act of 1933, thereby rendering the registration statement effective automatically in 20 days by operation of Section 8(a) of the Securities Act, without SEC approval.

On the one hand, by removing the delaying amendment the issuer is denied the benefit of any further SEC comments on the adequacy of the disclosure contained in the registration statement and runs the risk of a stop-order or institution of other administrative proceedings against it by the SEC.

On the other hand, placed in this dilemma, Section 8(a) resolves the adverse effects to the issuer caused by the potentially long delay of the shutdown and lack of additional capital, and, assuming the registration statement has been amended at least once in response to a letter of comment from the SEC staff recommending corrections and clarifications, the registration statement is less likely to become effective in deficient form or misleading.  This would also be the case with offerings by seasoned issuers as compared to first-time issuers prior to their initial full review by the SEC.

In accordance with Rule 473(b) of the Securities Act, appropriate companies may wish to replace the current delaying amendment in their registration statements with the following required legend:

“This registration statement shall hereafter become effective in accordance with the provisions of Section 8(a) of the Securities Act of 1933.”

In the event the SEC reopens prior to the expiration of the 20-day automatic effectiveness provision, the SEC staff may request certain issuers to add back the delaying amendment to their registration statements to the extent there are further SEC comments, but this may be a small price to pay for being proactive in an environment where time is almost always of the essence.

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Given the potential exposure to issuers and underwriters and their respective representatives and advisors, if a registration statement appears to be incomplete or inaccurate in any material respect, there will be a reluctance to rely on proceeding with an offering on the basis of Section 8(a). However, it can be argued that removing the delaying amendment and relying on Section 8(a) is consistent with how the SEC views the selective comment review process. In 2016, when the SEC eliminated the Tandy certification requirement as a condition to a registration statement being declared effective, the SEC stated:

“We remind you that the company and its management are responsible for the accuracy and adequacy of their disclosures, notwithstanding any review, comments, action or absence of action by the staff.”

This statement supports the view that, while the SEC review and clearance process can be helpful in assuring full and fair disclosure, it is the issuer’s obligation to ensure that its filings are accurate and adequate and, if the issuer, the underwriters and the other participants in an offering process are satisfied that this test is met, then offerings should proceed notwithstanding the lack of SEC involvement. Moreover, given that well-known seasoned issuers already have the ability to file registration statements on Form S-3 that are automatically declared effective upon filing, it would seem reasonable to believe that from a policy perspective there should be no impediments for first-time and smaller publicly-traded issuers to proceed with an offering if they believe that they have provided accurate and adequate disclosure.