By statute, every time an issuer files an amendment to a registration of a proposed issuance of securities, the filing resets the 20-day statutoryperiod that must lapse before the registration becomes effective. This isa problem, as the authors pointed out, above, because underwriters don’t want to be “locked in” to a certainprice for a security, because the securities market changes rapidly. To solve this problem, the SEC hasadopted the practice of “accelerating” the effective date, upon request by the issuer, when the Commissionfinds the registration (including amendments filed) to be satisfactory. Acceleration is a kind-of informalpractice adopted for purposes of administrative expediency, because it would be administratively difficult,and extraordinarily burdensome on business to actually comply with the statute as written.The problem for issuers is that the decision to accelerate or not accelerate the effective date of aregistration is within the sole, unappealable discretion of the SEC, and if the SEC just wants to make lifedifficult for an issuer, they can drag their feet on the acceleration until the underwriters throw in the towel or the statutory period lapses, whichever comes first. This is not the only weapon in the SEC’s arsenal, but it isa powerful one.My readings also include
“Acceleration” Under the Securities Act of 1933 – A Reply to the Securities and Exchange Commission
, by Mulford, John, 14 Bus.Lawyer 156 (1958). Mulford writes, in relevant part:
[The SEC's attack] was based … on the fact that the amendment would remove one weaponfrom the arsenal used by the Commission to force changes in the substantive features of public offerings of securities. They contend that this weapon (the power to deny accelerationon the filing of a price amendment and thus to prohibit particular public offerings) wasintended by the Congress to be granted to the Commission. The relevant decisions of thecourts and the legislative history of the 1940 amendment to the Securities Act which inserted the language relied on by the Commission are to the contrary.”
Having read relevant cases, myself, I am convincedMulford is right. As I look at the relevant case law, itseems to me that the Commission appears to have – andoccasionally to use – its (perhaps unconstitutionallybroad) discretion to penalize some proposed issuers of securities. Without more information than I have, it wouldbe mere speculation to allege that the Commission mightpenalize some proposed issuers for political reasons, or even, in some cases, out of spite that may arise betweenagents of the SEC and some proposed issuers. Thedanger, however, is very real that such abuses couldoccur, even if they do not in fact occur as a matter of course.Very apropos are the
Remarks of Harold Marsh, Jr. InPanel Discussion on Disclosure in Registered Security Offerings
, 28 Bus.Lawyer 505, 531-32 (1973).
Assuming that the criticisms of the usefulness of the type of disclosure presently found in most Registration Statements have some validity, and I think that few securities lawyers would assert that they are totally without foundation, the question arises as to where we went wrong.I think that this can be pinpointed with some precision. The story has often been told as tohow the official in charge of the processing of 1933 Act registrations was presented withrecommendations from his Staff that stop order proceedings be instituted against every singleone of the more than 100 statements that were initially filed. Instead of following theserecommendations, he invented the letter of comment procedure whereby the issuers weregiven an opportunity to rewrite their Registration Statements in the way that the SEC Staff wanted them written.There was, however, another clear choice which he had and presumably rejected, other thaninstituting over 100 stop order proceedings, and that was to inform his Staff in connection with95% to 99% of their comments that if they ever made any more asinine comments like that,they would be fired. In my opinion, the development of disclosure in registered offerings would unquestionably have been different, and very probably more useful, if the SEC Staff had