One of the things I learned as young securities lawyer was that securities offerings can be made only by prospectus. Accordingly, one of the first things we did whenever we embarked on an IPO was to send a memo to our clients reminding them of the limitations imposed on communications under the securities laws and alerting them to the risks associated with gun-jumping. (For the record, the term “gun-jumping” is sometimes referred to as “conditioning the market” for an offering, but in plain English it means hyping the offering.)
Unfortunately, some of our clients didn’t follow our advice, in some cases unintentionally and in other cases willfully or even due to arrogance. (One client told me that the SEC couldn’t limit his First Amendment right to free speech, even though he’d been advised that commercial speech doesn’t necessarily get First Amendment protection.) And while the principal remedy for gun-jumping – the imposition of a cooling-off period before the offering can be completed – may not seem severe, it can be a deal-killer. In one case, the SEC imposed a cooling-off period because an interview with the issuer’s CEO generated a story in several major newspapers shortly before the offering was to be priced. (Notably, the SEC did not cut the issuer any slack because the interview had been given several months earlier, before work on the offering had even begun.) Of course, even in those good old days, timing was everything when it came to pricing, and the delay imposed by the SEC had to be extended by the issuer because the market had turned and the offering was no longer viable. Given the volatility of today’s market, the consequences might be worse.
Over the years, people may have forgotten about gun-jumping, or assumed that it is no longer an issue. Liberalization of some SEC rules associated with communications and terms such as “free writing prospectus” may have given the impression that there is no such thing as gun-jumping. But it never went away, and as recently as 2020 an offering with which I was familiar nearly went awry due to gun-jumping concerns.
Then came this week’s news about a delay in the much-ballyhooed IPO of Pershing Square. To my knowledge, the issuer has not explained the reason for the delay, but media reports have stated that it resulted from the facts that the issuer’s CEO sent an “internal communication” about the offering to investors in the issuer’s investment manager, and that the information contained in the communication was not included in the preliminary prospectus and may have been inconsistent with the preliminary prospectus.
Given the market interest in the deal well before the delay was implemented, it seems unlikely that the delay will seriously impact the timing or success of the offering. However, the episode may serve as a reminder that old rules never die and may not even fade away.