6.1.5. The Cooling-Off Period
Once the lead underwriter and the issuer have completed the registration statement, they will file it with the SEC. As soon as the filing takes place, a 20-calendar-day cooling-off period ensues, during which the SEC and the public have time to study the information in the registration statement and the accompanying preliminary prospectus (also called a red herring).
The information that must be in the preliminary prospectus includes:
• All material information about the offering (e.g., price, amount of stock offered, expenses, commissions, net proceeds, use of proceeds, underwriters)
• General information about the issuer (e.g., issuer’s market capitalization, info about insiders and their holdings)
• Financial information about the issuer (e.g., income statements, balance sheets, cash flow statements)
• Copies of other relevant documents (e.g., underwriter agreements, issuer’s articles of incorporation, indentures)
When reviewing a registration statement, the SEC will never judge the merits of the securities or evaluate whether the offering is a good investment. In fact, the Securities Act makes it unlawful to portray the allowing of a registration to take effect as any sort of SEC approval. It’s even unlawful to portray it as a finding by the SEC that the registration statement is truthful, despite the fact that the SEC makes a good-faith effort within the limitations of its review process to identify inaccuracies. The same prohibitions apply to the filing of a registration statement—it may not be represented as anything but a filing. This part of the Securities Act is very broadly worded, and any statement that remotely sounds like an attempt to trade on the reputation or prestige of the SEC should be strictly avoided.
Remember: The SEC never “approves” a registration statement for a securities issue. Instead, if it finds no material omissions or misleading