Reap the Whirlwind: Obtaining Company Information in a Fast-Paced Environment

Welcome to the February 2021 edition of our newsletter!  In this issue, we’ll examine the Securities and Exchange Commission’s proposed rules concerning disclosures by companies during market volatility.

Time Flies and So Does Cash: Research Companies as New Ways to Market Emerge

As the prices of many asset classes soar to new all-time highs, more companies are seeking to raise capital in public markets.  With automated high-frequency trading and an increase in bulletin-board fueled day trading, issuing shares or debt in the current environment can change quickly.  Many companies have issued “shelf registrations,” indicating that they plan to issue shares in the coming years without expressly stating the intent of doing so.  Yet the first public disclosure such a company must file, a Form S-3, is only required to be filed within the first year of trading on the public market.

The SEC recently disclosed a draft letter which it may send to companies already on the market to inquire about risks related to any volatility in trading of their shares, which in turn could lead to instructions from the agency that the company revise its disclosures.

Investors can take steps to inform and protect themselves in such fast-paced and opaque situations.  Although the SEC’s letters have yet to be finalized and circulated, at some point they’re likely to be available under the Freedom of Information Act.  Additionally, companies seeking to provide products or services that are regulated by state or federal authorities will have a track record with the relevant oversight bodies.  Additionally, companies still seek to raise capital via private placements of their shares, for which a prospectus and other disclosures should be available.  Finally, even if a product is entirely new the people who develop it often are not, and thus their track records, as established by news articles, court filings and other public records, can offer insight.