Study Question of the Week: February 27, 2013 Edition

This week’s study question from the Solomon Online Exam Simulator question database is now available. Relevant to the Series 24, Series 62, Series 79, and Series 82. –ANSWER POSTED– Continue reading

This week’s study question from the Solomon Online Exam Simulator question database is now available.

Question (Relevant to the Series 24Series 62Series 79, and Series 82):

A company may file an 8-K after the closing of a PIPE transaction for all of the following reasons except?

Answers:

A. To alert investors of the possible dilutive effects of the transaction

B.  To disclose any material non-public information that was revealed to the PIPE investors so that they are not precluded from trading in the stock after the close of the deal

C.  To comply with Regulation S-X

D. To comply with Regulation FD

*Fun fact: only 55% of people get this question right

Corrrect Answer: C

Rationale: PIPE (Private Investment in Public Equity) transactions are when public companies raise funds by selling shares in a private offering. Because a PIPE transaction is a private offering, the company does not need to file a registration statement before the deal closes. Most companies typically register the offering after the deal closes, however, so that investors will not be subject to resale restrictions.
After the PIPE transaction, a company typically files an 8-K form to alert their shareholders, the public, and the SEC of the transaction. This serves to inform the shareholders that the PIPE transaction may dilute their current holdings. A more common reason to file an 8-K is to comply with Regulation FD (Fair Disclosure) which requires a company to file an 8-K if the company reveals material, non-public information to people who may trade on the information in the future. A PIPE transaction may require this disclosure because a PIPE transaction is material, non-public information and PIPE investors are privy to this information before the public. A company will usually get investors to agree to keep the information confidential until the close of the transaction, but then an 8-K is filed so that PIPE investors are not precluded from trading in the stock after the close of the deal. Many PIPE investors will require assurance that the 8-K will be filed after the transaction closes before they will agree to invest.

SEC Regulation S-X states that financial statements must be filed with a registration statement and sets forth guidelines as to the type and format of those statements.

Weekly study questions are from Solomon’s industry-leading Online Exam Simulator.

 

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