The Securities Act Registration Framework

Abstract

This chapter addresses the Securities Act registration framework. In its determination to maintain a transaction-based Securities Act registration framework while making necessary adjustments, the SEC has appropriately acted. With the improvements made, the registration framework functions in a relatively efficient manner and generally provides investors with adequate safeguards. Nonetheless, significant deficiencies exist which are addressed in this chapter. Among the improvements that should be implemented are: mandating that all material information (absent a meritorious business justification) be contained in a registration statement; limiting the use of incorporation by reference to those issuers whose securities in fact trade in efficient markets; and requiring that a sufficiently comprehensive summary section be included in the statutory prospectus. The chapter also focuses on due diligence and the integrated disclosure system. In the context of incorporation by reference and shelf registered offerings, the dilemma faced by outside directors and underwriters in performing their due diligence functions can be largely ameliorated by: for outside directors, the presence of a vibrant disclosure committee (comprised solely of outside directors) that is actively engaged in the disclosure process; and, for underwriters, the retention by a subject company’s audit or disclosure committee of a reputable law firm to conduct continuous due diligence on the prospective underwriter’s behalf.