DEFINITION of SEC Form 424B5
SEC Form 424B5 is the prospectus form that companies must file to disclose information referred to in forms 424B2 (filed in connection with a primary offering of securities) and 424B3 (filed if major changes have occurred to the prospectus). SEC Form 424B5 outlines updated prospectus information, facts or events from previously-filed forms.
BREAKING DOWN SEC Form 424B5
SEC Form 424B5 must be filed within two business days of the determination date of an offering price or the date first used following the effective date of a public offering or sale of securities by the company. Companies are required to file prospectus form 424B5 in accordance with Rule 424(b)(5) of the Securities Exchange Act of 1933.
SEC Form 424B5 and the Securities Exchange Act of 1933
The Securities Act of 1933 was passed to ensure that all new offerings of securities to the public have been fully vetted through careful due diligence and that the risk and rewards have been clearly detailed in the registration statement and prospectus. This is to ensure that all prospective investors have full knowledge before taking on undue risk and losing their money.
The Securities and Exchange Commission (SEC) is the federal regulatory agency responsible for enforcing the Act. Any party that willfully violates the Act of 1933 is subject to five years in prison, a $10,000 fine, or both. This Act also holds directors, attorneys, accountants, underwriting syndicate, and all persons who signed the registration statement civilly liable for false and misleading statements that the registration statement and/or prospectus contain.
The Act is so stringent because it was created on the heels of the stock market crash of 1929, brought about in part due to lack of transparency. Thus, this piece of legislation had two main goals: to ensure more transparency in financial statements and to establish laws against misrepresentation and fraudulent activities in the securities markets.
SEC Form 424B5 and Initial Public Offerings
SEC Form 424B5 must be filled out if any material changes occur to a company’s prospectus prior to an initial public offering (IPO). IPOs often occur for smaller, younger companies seeking capital to expand; however, large privately owned companies looking to become publicly traded may also IPO. In the majority of IPOs, the company going public or issuer obtains the assistance of an underwriting firm. This underwriter, often an investment bank, helps determine what type of security to issue, the best offering price, the amount of shares to be issued, and the time to bring the deal to market.