May 9, 2014

Disclosure in 1791! How Does the First IPO Compare?

My good friend James Lopez – currently on a second tour in Corp Fin – recently wrote this fascinating article about how the first IPO prospectus in the US looked. We’re talking 1791 here! Two hundred years plus. James dug out this first disclosure document from the papers of Alexander Hamilton. Here is an excerpt from the article:

Returning to the three topics mentioned previously, today Item 501 of Reg. S-K requires disclosure of the price per share and amount of shares being offered. The SUM’s prospectus states that each share will cost $100, the company will be capitalized with 5,000 shares, and “no subscriber shall be bound to pay until an Act of Incorporation shall have been obtained–for which application may be made as soon as the sums subscribed shall amount to One hundred thousand Dollars.” The SUM prospectus, therefore, generally satisfies basic pricing disclosure requirements.

What about the second requirement, a description of the business? We already know from the quotes above that the prospectus provided a broad overview of the SUM’s planned business. Item 101 of Reg. S-K contains many subtopics, and remarkably the SUM prospectus covers a few of these. For example, Item 101(c)(iii) requires discussion of the “sources and availability of raw materials.”

The SUM prospectus deals with the availability of potential locations for the intended business and states that the first choice, New Jersey, “is thickly populated–provisions are there abundant and cheap.” Item 101(c)(x) requires a discussion of the competitive conditions of a company’s business, including its principal products or services and the “methods of competition.” On this, the SUM prospectus lists more than a dozen proposed products, including “Thread, Cotton and Worsted Stockings” and “Brass and Iron Wire.” It goes on to state that “[t]o insure [sic] success it is desirable to be able to enter into competition with foreign fabrics in three particulars–quality, price, term of credit.” The prospectus then tackles each of these methods of competition in some detail. The SUM is two for two.

On the third requirement, today’s IPO prospectus includes a discussion of the most significant factors that make the offering speculative or risky, pursuant to Item 503 of Reg. S-K. The SUM prospectus’ third paragraph consists of the following sentence: “The dearness of labour and the want of Capital are the two great objections to the success of manufactures in the United States.”

Well, then, that’s clear and concise. In a few additional paragraphs the SUM prospectus focuses on each of these challenges in detail. For example, as for needing labor it states that “emigrants may be engaged on reasonable terms in countries where labour is cheap, and brought over to the United States,” and that “women and even children in the populous parts of the Country may be rendered auxiliary to undertakings of this nature.” Modern child labor laws aside, it looks like the SUM is three for three.

Also check out this recent article entitled: “The Rise And Fall Of The Largest Corporation In History.” The Vereenigde Oost-Indische Compagnie – also known as the United East India Company – was not only the first multinational corporation to exist, but also probably the largest company in history.

Confidential Treatment Requests: Don’t Need CTR to Omit Personal Information

Jay Knight of Bass Berry reports: Recently, Corp Fin Deputy Director Shelley Parratt noted at a conference that personally identifiable information (e.g., bank account numbers, social security numbers, etc.) can be redacted from SEC filings without a confidential treatment request. This is helpful to companies concerned about privacy issues, particularly for filing schedules to exhibits. Although this isn’t necessarily a new Staff position, it is an area where the Staff has been sometimes inconsistent since it wasn’t explicit in prior guidance.

Applying Morrison, Second Circuit Affirms UBS Credit Crisis Securities Suit Dismissal

As Kevin LaCroix explains in his blog, after the Supreme Court issued its opinion in Morrison v. National Australia Bank, the plaintiffs’ lawyers developed a number of theories to try to circumvent Morrison to assert claims under the U.S. securities laws on behalf of investors who purchased their shares in the defendant foreign company on a foreign exchange. These theories – including the so-called “listing theory” and the “f-squared” theory – have been largely rejected in the district courts, but the appellate courts had not yet weighed in. That is, until now. Learn more in the memos we have been posting in our “Securities Litigation” Practice Area.

– Broc Romanek