SEC Issues Guidance Regarding Securities Offerings During Times of Extreme Price Volatility

February 12, 2021

On February 8, 2021, the SEC’s Division of Corporation Finance issued guidance in the form of a sample comment letter to companies seeking to conduct securities offerings amid extreme market and price volatility.

According to reporting by The Wall Street Journal, many companies have sought to capitalize on high stock market valuations by raising funds in recent months, often via shelf registrations. At the same time, recent highly-publicized spikes in the share prices of certain companies have concerned regulators and raised risks for both companies and investors. The guidance states that these risks can be particularly acute when companies seek to raise capital during periods with:

  • recent stock run-ups or recent divergences in valuation ratios relative to those seen during traditional markets,
  • high short interest or reported short squeezes, and
  • reports of strong and atypical retail investor interest (whether on social media or otherwise).

“When a company seeks to raise capital under these types of circumstances, specific, tailored disclosure about market events and conditions, the company’s situation and the potential impact on investors is warranted.” In particular, the guidance calls for specified disclosure on the prospectus cover page and in the risk factors and use of proceeds sections.

Notably, the guidance urges companies to consider the sample comments as they prepare disclosure documents that are not typically subject to SEC review before use, such as automatically effective registration statements and prospectus supplements for takedowns from existing shelf registration statements.

Companies experiencing extreme price volatility are encouraged to contact the SEC with any questions regarding proposed disclosure.

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