Academic journal article Law and Contemporary Problems

Summary of Roundtable Discussions regarding the Future Content of the U.S. Securities Laws

Academic journal article Law and Contemporary Problems

Summary of Roundtable Discussions regarding the Future Content of the U.S. Securities Laws

Article excerpt

JAMES D. COX [*]

EDWARD F. GREENE [**]

On April 8-9, 1999, more than sixty securities lawyers, regulators, and academics participated in a roundtable discussion in Washington, D.C., on what should be the future content of the U.S. securities laws. The full participant list (excluding, however, SEC personnel) appears in the Appendix of this report. The conference's co-conveners were Mr. Edward F. Greene of Cleary, Gottlieb, Steen & Hamilton, and Professor James D. Cox of the Duke University School of Law. Our purpose was to see if a consensus could be forged regarding the direction the reform of the U.S. securities laws might take. Coincidentally, the SEC had extended the original comment period for its Aircraft Carrier release [1] to June 30, 1999. With the extended comment period, we were able to discuss many aspects of the reform proposals embodied in the Aircraft Carrier Release. The program was organized around the following six topics:

1. The Changing Regulatory Premises

2. Revamping the Disclosure and Offering Process

3. What Gets Regulated and Exempted

4. Regulatory Strategies to Address Internationalization

5. Liability Standards for a Company Disclosure System

6. The Regulation of Exchanges and Alternative Trading Systems

We offer below a summary of what we believe to be the central beliefs, conclusions, and approaches expressed at the meeting. Knowing that our collective memories could never accurately replicate the conference's discussions, we commissioned a court reporter to transcribe the conference's commentary. We then reviewed the resulting 419 page transcript to prepare this report. Because we assured each participant that no remarks would be attributed to any individual, no one is mentioned in our report. Instead, what follows is our synthesis of a highly stimulating and thoughtful day-and-a-half debate on the future content of the U.S. securities laws.

A threshold issue we considered is the scope of the SEC's power to implement reform pursuant to its exemptive authority under Section 28 of the Securities Act of 1933. [2] On the one hand, there was a consensus that the SEC could not use this authority to swallow up the Act, such as by exempting all offerings of an issuer, if the effect were to eliminate the responsibilities of the issuer or its directors under Section 11 of the Act. On the other hand, there was recognition that the SEC now enjoys broad authority to reduce the regulatory reach of Section 5, such as by narrowing the current definition of an offer to sell, by modifying the content requirements of the registration statement, by delineating what constitutes delivery of a prospectus, and by expanding the contours of the private placement exemption to permit the deregulation of the offering process and more liquidity with respect to restricted securities.

There was no sentiment for scrapping the current statutory framework of the U.S. securities laws. There was also a consensus that legislative action is both unnecessary and undesirable; any necessary reform can and should occur within the present statutory framework using the broad rulemaking and exemptive authority the Commission currently possesses. The analogy invoked in our discussion was a need to locate and repair "potholes" in the road, rather than constructing a new freeway that will pass through unfamiliar terrain. The strongest sentiment for maintaining the status quo was expressed for initial public offerings for which registration and review by the SEC's staff was not questioned. However, for all types of registrants, the conference participants believed there is a need to rethink the current prospectus delivery requirements, a point discussed below.

A registration statement should continue to be the regulatory cornerstone for public offerings by any issuer. However, the disclosure requirements for any registration statement should not be thought of as embodying all the information an investor should have in order to reach an informed decision to purchase the registrant's security; mandatory disclosure should focus upon those items of information uniquely known to the issuer. …

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