Post-Facebook, SEC reviewing rules on pre-offering communication

By Bernie Becker - 08/27/12 12:38 PM ET

The Securities and Exchange Commission is reviewing rules governing what can be communicated ahead of an initial public offering after Facebook's stock sale raised several concerns.

Mary Schapiro, the SEC chairwoman, said in a recent letter to Rep. Darrell Issa (R-Calif.) that the commission wanted to ensure its communication rules were not giving professional investors a leg up over other potential buyers.

In particular, Schapiro said that the regulator would take a look at so-called “quiet period” rules, which limit what can be said publicly about a company after it files with the SEC but before the commission makes that registration effective.

“Ensuring that our communications rules facilitate, not hinder, the ability of an issuer to communicate with all investors is an important aspect of the staff’s review of these rules,” Schapiro wrote last week to Issa, the chairman of the House Oversight Committee.

Issa was just one of the lawmakers to express concerns about the IPO for Facebook, which has seen its stock price plummet to under $20 a share.

Nasdaq’s technical issues caused some problems for the company’s initial offering. Questions remain whether professional investors got an unfair advantage in the lead-up to the IPO because some investors weren't aware analysts had dialed down their expectations for the social-media site.

For his part, Issa has written to Schapiro twice in recent months, saying that Facebook has raised broader questions about the IPO process.

The California Republican has said that regulations overseeing the process need to be modernized, with investment banks having gotten an upper hand through a 1933 securities act that he says is loaded with conflicts of interest.

In her letter to Issa, Schapiro acknowledged that the commission was reviewing current rules in large part because of technological advancements since 2005, the last time the SEC completed a major reform.

But the chairwoman also defended those 2005 changes, saying they allowed investors of all stripes to gain more information before an IPO.

Schapiro also noted that some people believe there is too much focus on institutional investors in initial offerings. She also noted that others believe professional investors' involvement can add more certainty to the IPO process and a stock’s pricing.

The Wall Street Journal first reported Schapiro's letter to Issa.