May 16, 2012
I am writing to provide comment on section 106 (i.e., "Confidentiality") of the JOBS Act of 2012. This section provides a non-public firm designated as an "emerging growth company" the option to file its S-1 statement confidentially with the SEC. My suggestion is any amendments made with the SEC over the course of the non-public process are revealed publicly after the first public disclosure.
The major motivation for section 106 is to allow non-public firms to begin the registration process without revealing potentially valuable information to competitors. Under the assumption that many S-1's require several amendments and multiple weeks, filing privately allows any potential issues to be resolved while limiting advance information disclosure. Eliminating premature disclosures should reduce the cost of raising capital, thus encouraging access to capital in general and the public capital market in particular. After the first public filings, the law appears to still give investors are ample time post-public filing to study the firm's financials. However, the history of the filings is an important part of this information set.
As of now, both investors and researchers can investigate the full time series of S-1 amendments. For example, Facebook has had a long series of amendments, many of which do not appear to be driven by SEC requests:
These changes to S-1 filings through amendments can be revealing for both investors and researchers, but this value is present even if the amendments are received after the first public disclosure. Eventual disclosure will protect investors and limit adverse selection, thus enhancing capital formation. The absence of public disclosure of these filings will needlessly reduce the information contained in the public filings. Including the provision that previously non-public amendments will be made public also ensures that the issuer would have a stronger incentive to get the information right immediately. Thus, the SEC can help ensure that confidential filings have the same quality as those previously made public by requiring this ex-post revelation requirement.
Last, academic researchers interested in the going public decision, information disclosure and regulation benefit from observing the full history of amendments. Regardless of the decision on this proposed change, researchers will likely have a smaller set of withdrawn IPO filings after the JOBS act implementation. Insofar as public disclosures of amendments can limit this cost, it would facilitate research in areas of economics, finance and accounting.
One would have to argue that the amendment process itself involves truly confidential information that will not be revealed in the public filing. So while the SEC may want to make it easier for firms to file confidential S-1s, they should not abandon their responsibility to provide full information to investors. Therefore, I argue that the series of non-public S-1 amendments be made public at the time the first pubic S-1 is filed.