Toward Disclosure Choice in Securities Offerings
Alan R. Palmiter
Wake Forest University - School of Law
Columbia Business Law Review, Vol. 1999
Federal regulation of securities offerings has become less mandatory. Over the last twenty years, Congress, the courts and the SEC have been rethinking the Securities Act of 1933 and its regulatory tenets of manager informational shirking and investor helplessness. No longer is the prototypical investor our guileless grandmother, but is now our savvy rich uncle.
This article asserts, as a positive matter, that federal regulation of securities offerings has come to accept party choice far more than acknowledged. Issuers can choose from richly-layered disclosure levels, offering methods, and even warranty-liability standards--all avoiding the strict disclosure/liability regime imagined by the Securities Act. Yet, despite this choice, there is strong evidence that investor informational demands in securities offerings often compel issuers to disclose at levels beyond that mandated--as a private, contractual matter.
As a normative matter, this article proposes that the SEC exercise its rulemaking powers to adopt an enabling legal structure so firms can choose the disclosure level appropriate for their securities offerings. (The proposal is limited to offering transactions, not ongoing disclosure by publicly-traded companies to trading markets.) Intermediated by markets and securities professionals, the disclosure aspects of the issuer-investor relationship in securities offerings (like other relational aspects subject to state-based corporate law) should be a matter of choice, giving issuers the latitude to supply the firm-specific information that investors demand and that they are willing to pay for. The federal disclosure regime would evolve as a set of options in which issuers choose disclosure and liability levels sought by investors--ranging from full-fledged "SEC certified" mandatory disclosure plus warranty-like antifraud liability to "non-certified" disclosure subject only to minimal antifraud liability. The article considers the advantages of the SEC as form-giver and the viability of disclosure choice resting on a mandatory informational floor of Rule 10b-5 fraud liability. Investors rely on a rich variety of non-prospectus signaling devices--principally from securities professionals and markets--in making investment decisions. Disclosure choice in securities offerings would shine the spotlight, even more brightly, on those who provide securities intermediation.
JEL Classification: G14, G18, G28, G38, K22
Date posted: May 19, 1999