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I kick off my Halloween-themed blogs with a scary horror story:

The opening scene is set in the 1990s, and a company has filed a registration statement with the SEC. The Staff review process is taking longer than expected, and the company desperately needs to raise money through a private placement so it can keep the lights on through the completion of the IPO. The company completes the private placement and discloses it in an amendment to its Form S-1, but then, a jump scare! The Staff raises a comment questioning whether the company has a valid exemption from registration for the private placement when it occurred while the Form S-1 was on file. Suffice it to say, this horror story does not end well – the Metaphysics monster exacts its revenge on the poor unsuspecting company.

This week, while I was teaching my exempt offerings class the concept of integration, it really hit me how the Commission’s thoughtful approach in 2020 to adopting a comprehensive integration rule really changed the landscape for public and private offerings, making the scary horror story above a relic of the past. Securities lawyers of a certain vintage will no doubt remember many stressful evenings analyzing an integration issue utilizing the unwieldy five factor test, while trying to piece together all of the random Commission and Staff integration lore to see if something could bring some level of certainty to the situation. Today, a securities lawyer need only pull up Rule 152, without being burdened with the five factor test and the numerous interpretations that made integration a pretty scary realm to navigate.

I have the advantage of being able to tell a significant piece of the story of integration’s evolution in the first person, as I worked with Marty Dunn to bring his “integration manifesto” into being (much like Frankenstein’s monster) through interpretive guidance that was included in a 2007 Regulation D proposing release. That guidance went on to serve as the foundation for the Commission’s approach in Rule 152, bringing about much needed relief to a scary part of the regulatory landscape.

If you would like to read the full story of Marty’s integration manifesto and the evolution of the integration doctrine, I encourage you to review the article “Wither the Integration Doctrine? A New Approach Dawns This Spring” in the January-February 2021 issue of The Corporate Counsel.

– Dave Lynn