Quagmire: Is the SEC Stuck in a Misguided War Against PIPE Financing?

Transactions: The Tennessee Journal of Business Law, Forthcoming

Marquette Law School Legal Studies Paper No. 10-22

38 Pages Posted: 20 Apr 2010  

Douglas Hoffer

Marquette University - Law School

Date Written: April 20, 2010

Abstract

A popular non-traditional capital formation option is the “PIPE” deal: Private Investment in Public Equity. Over the last ten years, companies raised more than $100 billion using PIPE transactions. The Securities and Exchange Commission (“SEC”) has increased its regulatory oversight of PIPE transactions as they have become more popular. The SEC believes that some PIPE investors who take a short position in a PIPE issuer’s publicly traded shares violate Section 5 of the Securities Act by selling unregistered securities, and that PIPE investors who trade on knowledge of an impending PIPE transaction are guilty of insider trading. The purpose of this article is to demonstrate that the SEC’s aggressive enforcement against PIPE deals is misguided both because it is based on flawed interpretations of the law and because it ignores the benefits of PIPE financing. Although most of the existing scholarship on PIPE financing shares the SEC’s negative views, these articles have ignored the benefits and exaggerated the risks associated with PIPE financing. This article makes the case for PIPE financing by fully considering its benefits and risks.

Keywords: PIPE, private investment in public equity, capital formation, securities

JEL Classification: K22

Suggested Citation

Hoffer, Douglas, Quagmire: Is the SEC Stuck in a Misguided War Against PIPE Financing? (April 20, 2010). Transactions: The Tennessee Journal of Business Law, Forthcoming; Marquette Law School Legal Studies Paper No. 10-22. Available at SSRN: https://ssrn.com/abstract=1593264

Douglas Hoffer (Contact Author)

Marquette University - Law School ( email )

Eckstein Hall
P.O. Box 1881
Milwaukee, WI 53201
United States

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