Blinded with Silence
Firms about to go public zip up and hide during a so-called “quiet period” – but don’t blame the SEC.
Like X-ray glasses and anti-gravity boots, pre-IPO “quiet periods” seem to defy the laws of nature. Normally, startups will do anything to grab attention. Short of dressing a CEO in a chicken suit, no gimmick is too extreme if it generates brand-building buzz and helps a young company stand out.
Curiously, all this changes once a company announces plans to go public. In the months leading up to a stock market debut, swarms of PR consultants are replaced by teams of tight-lipped lawyers-at the very moment when the company may become the focus of intense investor interest. It’s a period of self-imposed silence that remains in place from the moment an “organizational meeting” occurs between the investment bankers who plan to take the company public and counsel until 25 days after the pricing of the IPO. It typically lasts three and a half months.
“You let the lawyers walk you through what you can and can’t say, and then you just sit tight,” says Brian Ek, vice president of corporate communications at Priceline.com, which went public last spring. “Once you enter the quiet period, you just stop talking.”
Surprisingly, however, the Securities and Exchange Commission does not explicitly prohibit a company from speaking to the media in the weeks or months before a stock begins trading. And there is no law that formally mandates that a quiet period must go into effect. “The quiet period is a matter of industry practice, rather than regulation,” explains SEC spokesperson John Heine. “Given that the United States has this thing called the First Amendment, we can’t go around simply ordering people not to talk.”
Instead, it is the securities lawyers who counsel their clients to keep quiet-mostly because SEC regulations that spell out what a company can and cannot disclose before it begins selling shares are so broad. The lawyers also advise their clients to say nothing so the SEC or shareholders will not interpret any seemingly innocent statements as an improper offer to sell securities by stimulating interest among potential investors. At the heart of both these worries lies the most crucial document in any securities offering: the prospectus.
Under the Securities Act of 1933, any company that wants to issue stock to the public must base its offer upon a written prospectus that outlines business fundamentals and potential risk factors that may affect the company’s future financial prospects. Because the prospectus on file with the SEC is meant to serve as the primary means for potential investors to obtain information about a securities offering, company representatives must avoid making public statements that could be construed as either amending or-even worse-contradicting information contained within the prospectus. This means management and employees must watch what they say during pre-IPO registration-not just to the media, but also in corporate brochures, or while speaking at conferences and trade shows.
Ordering prepaid calling cards can help you control your telephone bills profitably, wisely, and they’re extremely convenient.