It is crucial to understand that the issuer and the underwriting syndicate cannot sell securities, solicit requests for orders or send out any research report or any report that discusses the company's future sales and earnings during the period between the filing date and the effective date.

They can publish a tombstone advertisement, which contains a standardized clause that merely announces the new issue but disclaims the tombstone as an offer to sell or solicit orders. In addition, unsolicited requests for information may be met by sending out a preliminary prospectus.

No subscription payments may be requested, even if they are held in escrow until the effective date. Although a red herring can be sent to prospective purchasers without them requesting it, direct solicitations may be made only by means of a final prospectus.

Prospectus Delivery
The managing underwriter provides both preliminary and final prospectuses to the broker-dealers participating in the distribution. These dealers, in turn, provide prospectuses to clients over the 25-day period following the effective date if the securities are listed on a national exchange or on the Nasdaq.

There is no aftermarket prospectus requirement if the security is already listed on these markets. The prospectus delivery requirement for non-Nasdaq OTC securities is 90 days if the company has never before issued an IPO, or 40 days if the security has been previously listed.

Exempt Securities
Securities exempt from registration under the Securities Act of 1933 include the following:

  • U.S. government and federal agency issues
  • Municipal and state issues
  • Intrastate offerings
  • Small public offerings
  • Private placements
  • Insurance policies, including fixed annuity contracts
  • Commercial paper and banker acceptances with maturities of nine months or less

Regulation D: Private Placements
When a company wants to save time and money, it can sell securities in a non-public offering, known as a private placement. Provided the following conditions are met, a private placement is exempted by SEC Regulation D:

  • The buyer is a sophisticated investor, experienced enough to evaluate the risks involved.
  • The buyer has access to the same financial information that is normally included in a prospectus.
  • The buyer does not intend to make a quick sale.
  • The issue is sold to no more than 35 non-accredited investors. Note that this 35-person exception does not apply to accredited investors. Accredited investors are defined as financial institutions, private business development companies, and large, tax-exempt plans; an accredited investor can also be a director, officer or partner of the issuing company, or anyone with a net worth of $1 million, or an individual whose gross income for each of the past two years was $200,000 or more (or $300,000 jointly with a spouse) and who has reasonable expectations of meeting that income level the following year.

Penalties under the 1933 Securities Act
Any person who willfully violates the Securities Act of 1933 or SEC rules and regulations is subject to five years in prison, a $10,000 fine, or both. The act also holds the directors, attorneys, accountants, underwriting syndicate, and all persons who signed the registration statement civilly liable for false and misleading statements contained in the registration statement and prospectus. As a result, any one of the participating individuals may be sued by an investor who purchased the new issue and was not aware of any false statements or omissions.



Investment Company Act of 1940

Related Articles
  1. Investing

    The Road To Creating An IPO

    Through an Initial Public Offering, or IPO, a company raises capital by issuing shares of stock, or equity in a public market. Generally, this refers to when a company issues stock for the first ...
  2. Financial Advisor

    The Issuance Procedure of Corporate High-yield Bonds

    Issuing debt over equity can have several advantages for companies. Here we have a detailed look on the issuance procedure of corporate high-yield bonds.
  3. Insurance

    The Rise Of The Modern Investment Bank

    Get to know a little bit about the institutions whose actions help to guide free markets.
  4. Investing

    Who is an Accredited Investor?

    Essentially, accredited investors are knowledgeable and experienced enough to handle the risk that comes with investing in unregistered securities.
  5. Investing

    5 Tips For Investing In IPOs

    Thinking of investing in IPOs? Here are five things to remember before jumping into these murky waters.
  6. Insurance

    Is Insurance Underwriting Right For You?

    If you have excellent analytical skills and an eye for detail, this may be your calling.
  7. Investing

    Do You Have What it Takes to Be an Accredited Investor If the Rules Loosen?

    The definition of accredited investor may expand if the Senate backs the House and approves the Fair Investment Opportunities for Professional Experts Act.
  8. Insurance

    5 Tips For Investing In IPOs

    It’s not easy to profit from IPO​s, but the money is there.
  9. Financial Advisor

    Succeeding At The Series 63 Exam

    Your career as a securities agent begins with this test. We'll show you how to score high.
Frequently Asked Questions
  1. What are Common Examples of Monopolistic Markets?

    Discover what causes real instances of market monopoly, how it persists and where monopoly privilege is most common in the ...
  2. What is the gold standard?

    The gold standard is a monetary system where a country's currency or paper money has a value directly linked to gold, but ...
  3. What's the most expensive stock of all time?

    The most expensive publicly traded stock of all time is Warren Buffett’s Berkshire Hathaway.
  4. What is a "socially responsible" mutual fund?

    As the name suggests, socially responsible mutual funds invest exclusively in socially responsible investments.
Trading Center