SEC Publishes Sample Letter to Companies Raising Capital during Periods of Extreme Price Volatility
The SEC Division of Corporation Finance (the "Division") published a sample comment letter that it may issue for companies seeking to raise capital in securities offerings during times of market and price volatility.
The Division stated that a company seeking to raise capital under these circumstances should provide tailored disclosures to potential investors regarding the impact of market events and conditions on the company's stock. The Division urged companies to include the following disclosures:
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a description of recent stock price volatility and the known risks of investing in a company's stock under volatile circumstances;
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for comparison purposes, disclosure of the market price of the company's stock prior to recent price volatility; and
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an explanation of recent shifts in the financial condition or operations of the company that are consistent with recent changes in its stock price.
The Division encouraged companies to include risk factors regarding (i) recent extreme volatility in a company's stock price, (ii) the impact of a potential "short squeeze" on the company's stock price, (iii) the number of shares being offered by the company relative to the number of shares that are outstanding and (iv) the dilutive impact of any additional future offerings to fund operations or to provide liquidity. The Division also urged companies to disclose the priorities for proceeds raised in an offering in the event that less than the maximum aggregate offering amount is raised.