It's Quiet, Too Quiet

Article excerpt

With almost every American worker a stockholder, and Internet hype abounding, the SEC's 'quiet period' doesn't work anymore

In many ways, there's no better example of government "Sunshine laws" than the regulations the Securities and Exchange Commission (SEC) imposes on an initial public offering (IPO) of stock. Before companies can take an IPO to market, they must first issue a prospectus spelling out their business plan -- and their chances of success -- in often excruciating detail. Typically, IPO prospectuses throw up so many red flags to investors, it's a wonder companies ever raise a dime.

Fledgling firms, especially dot-coms arriving too late to the orgy with squirrelly pro forma papers and shaky prospects, no doubt cringe at documenting their many flaws, but this SEC-mandated transparency has proven one of the best guarantors of open and free markets.

If the SEC were forced to issue its own prospectus on securities law, however, it would have to note that while the commission scrupulously observes and enforces the letter of its rules it has failed to grasp the spirit of "Sunshine laws." The movement is motivated by a simple philosophy: The more free speech, the better. Truth, given the chance to express itself robustly, will always trump lies, half-lies, and hype.

It's a philosophy at odds with one of the SEC's oldest -- and, it must be said, best-intentioned -- practices, the so-called "quiet period." In the weeks and days before a formal stock offering or IPO, a company generally cannot comment publicly or disclose information except through its prospectus. …