US SEC asks companies to report when raising capital in volatile periods

The Division of Corporation Finance recognizes the importance of capital formation, including during times of market volatility and when an issuer’s own securities are experiencing extreme price volatility. The Division also cautions that such market and stock volatility can create risks for both companies and investors. 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).

Risks can also be more acute when companies are in distress, face “going concern” or liquidity challenges or have smaller public floats.

The Division believes that 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 to provide investors with the information they need to make informed investment decisions and comply with the company’s disclosure obligations under the federal securities laws.

The following illustrative letter contains sample comments that, depending on the particular facts and circumstances, the Division may issue to companies seeking to raise capital in securities offerings amid market and price volatility. The sample comments do not constitute an exhaustive list of the issues that companies should consider. Any comments issued would be appropriately tailored to the specific company and offering, and would take into consideration the disclosure that a company has provided in its offering documents and other Commission filings. The Division urges companies to take these sample comments into consideration as they prepare disclosure documents that may not typically be subject to review by the Division before their use, such as automatically effective registration statements and prospectus supplements for takedowns from existing shelf registration statements. The Division encourages companies experiencing extreme price volatility to contact the industry office responsible for the company’s filings with any questions regarding the company’s proposed disclosure.

The sample letter is available at https://www.sec.gov/corpfin/sample-letter-securities-offerings-during-extreme-price-volatility

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