Does Anyone Dare Take the Securities Act Literally?

“[T]he effective date of a registration statement shall be the twentieth day after the filing thereof.” That statement, in section 8(a) of the Securities Act of 1933,  makes the process seem so reassuringly quick and simple. If I want to offer securities to the public, I file a registration statement with the SEC and, less than three weeks later, I’m ready to go. But, as every securities lawyer knows, it isn’t really that easy.

It can take months for the registration statement in an IPO to become effective. The statutory deadline is circumvented through the use of a delaying amendment, a statement in the registration statement that automatically extends the 20-day period until the SEC has finished its review. See Securities Act Rule 473, 17 C.F.R. § 230.473.

But wouldn’t it be so much more conducive to capital formation if there really was a hard 20-day deadline? I understand that the SEC doesn’t have the staff to complete a full review in that time frame, but it would force them to focus on the important disclosure issues rather than some of the trivialities one sees in the current comment letters.

I’d like to see someone test that automatic 20-day effectiveness—file a complete registration statement without the delaying amendment and wait to see what happens. The issuer would, of course, be stuck with a price set 20 days before sale, because section 8(a) provides that amending the registration statement resets the 20-day clock. But that’s not the biggest problem.

The biggest problem is that the SEC would undoubtedly seek a stop order under section 8(d) of the Act. It’s only supposed to do that if it appears the registration statement contains a materially false statement or omits a material fact required to be included or necessary to keep the registration statement from being misleading. But I have no doubt that the SEC staff would argue that something in the registration statement was materially misleading, no matter how complete and carefully crafted it was.

Still, it would be nice to see someone try, just to see the SEC scramble to deal with such an unprecedented lack of obeisance. Unfortunately, no one would risk it—unless . . . Mr. Cuban?