Series 79: Exemptions And Safe Harbors

Exemptions and Safe Harbors

The rules we’ve looked at so far might give the impression that an issuer or underwriter dare not write or publish any information about a company or its proposed offering, lest the communication be deemed an unregistered prospectus or an offer under Section 5. While this impression is largely valid, the SEC has crafted several exemptions and safe harbors from the general rule. These exemptions allow issuers to continue conducting business and to make fairly nondescript statements about their businesses without fear of thereby violating the Securities Act. (As a reminder, a “safe harbor” is basically a non-exclusive exemption; a person who does not meet a rule’s safe harbor requirements may nonetheless be exempt under a different statute or rule.)

You will recall that Section 5 effectively creates three distinct time periods for the offering process. Not every exemption applies to all of these time periods. In addition, some exemptions and safe harbors are available only to the issuer, not to an underwriter. Thus, in analyzing whether a particular communication qualifies for an exemption under these rules, it is essential to consider not only the substance of the communication, but also when the communication was made, and by whom.

Note that the exemptions and safe harbors are not mutually exclusive: more than one exemption could conceivably apply to a given communication. Finally, while these rules exempt statements from the requirements of Section 5, they do not confer any exemption from anti-fraud requirements.

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