June 30, 2005

Securities Act Reform

At Chairman Donaldson’s last open meeting yesterday, the Commission unanimously adopted rules to reform the Securites Act, substantially as proposed last October. The actual final rules won’t be posted for awhile, but based on comments at the meeting, deviations from the proposed rules appear to include:

Electronic Road Shows – a live road show that is simultaneously transmitted by electronic means to live recipients will still be treated as an oral communication. However, as proposed, a live road show that is recorded and retransmitted on a delayed basis will be treated as a graphic communication, but would be permitted as a free writing prospectus. However, those road show presentations would not be required to be filed as proposed, except in the case of road shows for an initial public offering of equity securities.

Liability – the final rules will provide that prospectus supplements are included in shelf registration statements for disclosure liability purposes, but would establish a new registration statement effective date for Section 11 liability purposes only for issuers and underwriters, but not for directors, officers and named experts, as originally proposed. And cross liability provision will be clarified. One underwriter will generally not be liable for statements made by another unrelated offering participant.

Tweaks on the WKSI Definition – The $700 million public float test for WKSI status will be based on worldwide public float; an issuer will qualify as a “debt-only” WKSI only if it has issued $1 billion or more of non-convertible debt in registered offerings for cash, not exchange. In addition, the final rules provide that a “debt only” WKSI will be permitted to register its equity securities in an automatic shelf registration statement if it otherwise meets the Form S-3 $75 million public equity float requirement.

We are posting law firm memos on the final Securities Act Reform rules here.

Other Open Meeting Items

The Commission voted for a second time yesterday (3-2) to adopt a rule requiring greater independence on mutual fund boards. The Chamber of Commerce is expected to sue the SEC again, accusing it of violating the appeal court’s order. A New York Times article quotes Stephen Bokat, Executive Vice President of the National Chamber Litigation Center as saying “We are going to file a petition to review the SEC’s action today as soon as we can complete the technicalities necessary.”

Additionally, the Commission unanimously voted to approve the shell company rules.

Posted by Julie Hoffman