In our Practising Law Institute treatise Exempt and Hybrid Securities Offerings, we refer to the concept of “integration” under the securities law as a bogeyman of sorts for practitioners. In this day and age of tweets and posts, and where public and “private” offerings are hard to distinguish from one another, is the concept of integration antiquated? Or is it perhaps due for a comprehensive re-examination by the Securities and Exchange Commission? As we discuss below, many of the fundamental principles of integration of offerings, aggregation of offerings for purposes of securities exchange rules, and communications issues like “gun-jumping” and “quiet periods” may have been so eroded as to no longer be meaningful.

Integration Principles and the “Five-Factor Test” -

It is well understood that an issuer should not be able to circumvent the registration requirements arising under section 5 of the Securities Act of 1933 by conducting a series of smaller offerings separately and thereby evading registration. An issuer must consider each proposed financing and assess whether such financing meets all of the requirements for an exemption from the registration requirements. Also, an issuer must assess whether a series of financings conducted in close proximity to one another form part of the same plan of financing and ought to be integrated and considered as a single offering that either is exempt from registration or subject to the registration requirements. It is, of course, possible that even if a series of separate exempt offerings was considered part of a plan of financing, or “integrated,” that there may still be a valid exemption for the offering as a whole. Offerings occurring in close proximity to one another may not be required to be integrated or considered together if each such offering meets the applicable conditions for its exemption and is a separate offering. Related to these questions, practitioners often consider as part of the same inquiry whether communications made in connection with one proposed offering may vitiate the exemption sought to be relied upon in connection with a subsequent offering. For example, would communications that are considered a “general solicitation” made in connection with a proposed public offering render unavailable the section 4(a)(2) statutory private placement exemption under the Securities Act. Or would discussions relating to a potential private placement be viewed as “jumping the gun” in connection with a subsequent, but not-yet-launched, public offering? While not necessarily central to the fundamental integration question, communications issues seem inextricably linked to many of the fact patterns that we regularly encounter.

Originally published in The Current: The Journal of PLI Press,

Vol. 1, No. 1 on July 31, 2017.