Written by: Eliana Cotton & Peter Dzuba, Esq.
For companies preparing to go public, or pursuing a new offering, the path towards selling securities is not just a financial and operational battle, it is a legal minefield. One of the most complex regulatory hurdles arises before any registration statement is filed: the pre-filing period. During this stage, what an issuer says, or is perceived to say, can violate federal securities laws, specifically, Section 5(c) of the Securities Act of 1933 (the “Securities Act”). Avoiding a misstep during this period requires precision. For issuers, mastering both the restrictions and available safe harbors during the pre-filing period is necessary to minimize regulatory risk.
The pre-filing period and Section 5(c): How to Avoid “Gun-Jumping”
Under Section 5(c), it is unlawful for an issuer, underwriter, or dealer to “make offers” through oral or written means unless a registration statement is filed with the Securities and Exchange Commission (SEC). This prohibition applies broadly, transcending formal offers, and capturing any communication that might be construed as promoting the offering before it is officially registered. This prohibition is commonly referred to as “gun-jumping,” and it encompasses a wide range of conduct, beyond what many may expect. The gun-jumping prohibition, includes press releases, public statements, investor presentations, interviews, and website updates.
Conditioning the Market: What Counts as an Offer?
One of the central concerns of the SEC during the pre-filing period is conditioning the market. One conditions the market when they release nonfactual information that could have the effect of conditioning investor interest in a forthcoming offering. The SEC has taken the stance that publicity which indirectly promotes a forthcoming securities offering can violate Section 5. These promotions are not limited to overt and obvious offers to sell, even nonfactual press releases, overly optimistic descriptions of company operations, or media appearances may be deemed improper. Intent and effect matter. If a communication, even a seemingly routine business announcement, has the effect of promoting the upcoming securities offering, it may violate the law and jeopardize the IPO.
Safe Harbors for Permissible Communications
Despite these broad restrictions, the SEC has carved out several safe harbors for certain communications under certain conditions. These safe harbors are critical for issuers who wish to continue routine operations and disclosures without setting off the Section 5 bomb.
I. Underwriter Negotiations
Section 2(a)(3) of the Securities Act [15 U.S.C. § 77b(a)(3)] expressly excludes from the definition of “offer” any preliminary negotiations or agreements between an issuer (or its affiliates) and underwriters, or among underwriters themselves, who are or will be in contractual privity with the issuer. Discussions related to underwriting arrangements, such as pricing structure, due diligence planning, and syndicate participation, may occur during the pre-filing period without violating Section 5(c). However, this safe harbor is narrow. It does not extend to communications with investors, the public, or the broader market, which could still be deemed unlawful.
II. Limited Press Announcements: Rule 135
Rule 135 under the Securities Act [17 C.F.R. § 230.135] allows an issuer to announce its intent to go public without the statement being considered an offer. Permitted disclosures can include intent to make a public offering, title, amount, terms of the securities, timing and purpose, and the issuer’s name. The announcement must also contain a legend. The information allowed to be included in these press releases is limited in nature.
III. The WKSI Break: Rule 163
Under Rule 163 [17 C.F.R. § 230.163], offers by or on behalf of a well-known seasoned issuer (“WKSI”) before the filing of a registration statement are free from the restraints of Section 5 liability, if certain conditions are met. These conditions include: any written offer must contain a prescribed legend and must be filed with the SEC upon filing of the registration statement for the offering, unless the offering is exempt or communication has previously been filed with the SEC. These WKSI written offers are free writing prospectuses. WKSIs may also make oral offers during this stage.
IV. 30-Day Pre-Filing Exclusion: Rule 163A
Rule 163A [17 C.F.R. § 230.163A] provides issuers a safe harbor for communications made more than 30 days prior to the filing of a registration statement. Yet, as expected, this rule is narrow and there are a few critical qualifications. First, the communication must be made by or on behalf of the issuer. Second, there must be intent to make a public offering. Third, the communication must not reference the offering. Finally, the issuer must take reasonable steps to prevent further dissemination during the 30 days immediately before filing. This break can be useful for press announcements and updates outside the sensitive 30-day window, provided they are properly managed, restricted, and not overly promotional.
V. Testing the Waters: Rule 163B
Rule 163B [17 C.F.R. § 230.163B] allows issuers to “test the waters” with Qualified Institutional Buyers as defined in Rule 144A and Institutional Accredited Investors as defined in Regulation D through oral and written communications, even before filing a registration statement. The purpose of this safe harbor is to gauge interest of the top industry participants before incurring the costs of the filing process. These communications are considered preliminary and exploratory. These communications will not be considered “offers” for the purposes of Section 5 liability. Yet, they should be documented and coordinated with securities counsel to avoid inadvertent violations.
VI. Factual Business Information: Rule 168
Rule 168 [17 C.F.R. § 230.168] allows issuers a safe harbor from liability for reporting issuers to release factual and forward-looking information. This rule is nearly identical to Rule 169 (below), but with some crucial caveats. Factual business information releases may include, but are not limited to, new product announcements, sales data, and operational updates. Forward-looking information can include certain subjective information such as financial predictions, plans or objectives relating to the products and services of the issuer, and statements about future economic performance. The release must also reflect ordinary course of business for the firm. To be ordinary, the communication must be similar or mirror the timing, form, and information type previously released.
VII. Factual Business Information: Rule 169
Voluntary filers and non-reporting issuers may rely on Rule 169 [17 C.F.R. § 230.169] to share factual information released in the ordinary course of business. This rule mirrors the factual business information and ordinary course of business requirements of Rule 168, but does not allow forward-looking information. To qualify for this safe harbor, the communication must target the general public, rather than investors specifically. This safe harbor is particularly helpful for companies that regularly engage with customers or media as part of their business operations.
VIII. Research Reports: JOBS Act Amendments
The JOBS Act of 2012 [15 U.S.C. § 77d(a)(6)] introduced provisions that allow broker-dealers to publish and distribute research reports about emerging growth companies (“EGCs”) without such reports being deemed offers under the securities laws. Additionally, Section 105(b) of the JOBS Act amended the Securities Exchange Act of 1934 to limit the SEC from restricting communications between analysts and potential investors, or between analysts and company management, in connection with EGCs.
Conclusion
The pre-filing period is risky. Even well-meaning statements can be construed as offers, particularly if they generate public interest in an upcoming offering. For companies preparing to go public, it’s essential to coordinate all public communications with legal counsel, implement internal controls on media, investor, and analyst engagement, and educate executives and employees on the limits of what can be said and when. A well-managed pre-filing strategy is crucial for a successful IPO.
Peter Dzuba is an attorney at Barakat + Bossa PLLC. He advises clients on complex corporate transactions, including mergers and acquisitions, financings, fund formations, and regulatory compliance. Peter brings a multifaceted background in corporate law, immigration, and cross-border investments. He may be reached at pdzuba@b2b.legal.
Eliana Cotton is a law clerk at Barakat + Bossa PLLC and a third-year law student at the University of Miami School of Law. Her interests lie at the intersection of business, real estate, and emerging regulatory frameworks, with a focus on securities regulation, cryptocurrency, and fashion law. She may be reached at ecotton@b2b.legal.
This post is intended to provide you with general information regarding an IPO pre-filing period, yet its content does not constitute specific legal advice. Please reach out to us directly if you would like our attorneys to assist you.
