Information About Some Companies Not Available From the SEC
Nov. 26, 2013
Investors are sometimes surprised to learn the SEC does not have information about all public companies. This happens when a company’s securities offering is exempt from the SEC registration requirements, and the company doesn’t have to file reports with the SEC. Just because there is an absence of information does not necessarily mean that a company has violated the federal securities laws. But be aware that when reliable information is scarce, fraudsters can more easily spread false information about the company.
Many companies that sell their securities to the public must register those securities under the Securities Act of 1933. These companies must give investors a prospectus describing the company and important facts about the offering. But some company’s securities offerings may meet an exemption from the registration requirements. Some of the more common exemptions companies use are:
- intrastate offerings;
- Regulation A and D offerings;
- private offerings; and
- sales of securities through employee benefit plans.
To learn more about the SEC’s registration requirements and available exemptions, read our Q&A: Small Business and the SEC.
If a company registers its securities under the Securities Act, the company must then file periodic reports with the SEC under the Securities Exchange Act of 1934. The obligation to file reports continues at least through the end of the fiscal year in which the registration statement became effective. After that, the company is required to continue reporting unless the number of its record shareholders fall below the following "thresholds," in which case the company’s filing obligations may be suspended:
- 300 shareholders of the class of securities offered; or
- 500 shareholders of the class of securities offered and less than $10 million in total assets for each of its last three fiscal years.
Even if a company doesn’t have to register its securities for an offering, it still may have to file reports with the SEC if the company lists its securities on an exchange or has record shareholders above a certain number - 2,000 generally.
If a company is exempt from both the Securities Act and the Exchange Act, it is likely it will not have to file any public information with the SEC. In this case, you can get information about the company from these sources:
- From the company. Ask the company for any available information. If the company is small and unknown to most people, you should call your state securities regulator to get information about the company, its management, and the brokers or promoters who've encouraged you to invest in the company.
- The Secretary of State where the company is incorporated. Contact the secretary of state where the company is incorporated to find out whether the company is a corporation in good standing. You may also be able to obtain copies of the company's incorporation papers and any annual reports it files with the state.
- From your state securities regulator. You should also contact your state securities regulator to find out whether they have information about a company and the people behind it. Look in the government section of your phone book or visit the website of the North American Securities Administrators Association to get the name and phone number. Even though the company does not have to register its securities with the SEC, it may have to register them with your state. Your regulator will tell you whether the company has been legally cleared to sell securities in your state.
- From other government regulators. Many companies, such as banks, do not have to file reports with the SEC. But banks must file updated financial information with their banking regulators. If you want to find this information, visit the Federal Reserve System's National Information Center of Banking Information site at www.ffiec.gov/nicpubweb/nicweb/nichome.aspx, the Office of the Comptroller of the Currency at www.occ.treas.gov, or the Federal Deposit Insurance Corporation at www.fdic.gov.
- From reference books and commercial databases. Visit your local public library or the nearest law or business school library. You'll find many reference materials containing information about companies. You can also access commercial databases for more information about the company's history, management, products or services, revenues, and credit ratings.
For more information about small companies that may not have to make filings with the SEC, read our brochure Microcap Stock: A Guide for Investors.