April 25, 2001
Via Email (email@example.com)
Jonathan G. Katz
U.S. Securities and Exchange Commission
450 5th Street, N.W.
Washington D.C. 20549-0609
Re: Proposed EDGAR Filing of Form D
Release No. 33-7964, File No. S7-08-01
Dear Mr. Katz:
Cooley Godward llp appreciates the opportunity to present its concerns about the proposal to require filing of Form D using the EDGAR system to be considered at the Annual Conference on Uniformity of Securities Laws held by the Securities and Exchange Commission (the "Commission") and the North American Securities Administrators Association, Inc. ("NASAA") on April 30, 2001. It is our opinion that the unintended consequences of requiring electronic filing of Form D, ranging from broad dissemination of confidential information regarding private issuers' funding sources to the relative inaccessibility of EDGAR processing facilities, substantially outweigh any possible benefits of the proposed electronic filing requirement.
Since Regulation D became effective on April 15, 1982, Rule 503 of the regulation has required issuers to file a notice on Form D within fifteen days of the first sale of securities in reliance on Rule 504, 505 or 506. The release proposing Regulation D1 describes the purposes of the Rule 503 notice filing requirement as allowing the Commission and the various states to: (1) assess their efforts in implementing a coordinated regulatory scheme for small offering exemptions, (2) determine the degree of institutional participants in exempt offerings through disclosure of investors' accredited or non-accredited status, and (3) elicit information, such as number of purchasers and offering expenses, necessary for assessing the effectiveness of Regulation D as a capital raising device for small businesses.
Notably absent from the release proposing Regulation D is an intent to render the information on Form D broadly accessible to the public. The immediate result of requiring private issuers to file Form D using the EDGAR system would be precisely that. Form D currently requires disclosure by private companies of sensitive and confidential information including (1) identities of the issuer's promoters, ten percent beneficial owners, executive officers and directors, and persons receiving commissions in connection with the offering, (2) the nature and amount of securities offered and sold and the associated expenses of the offering, and (3) the proposed use of proceeds from the offering. Disclosure of this sensitive and confidential information to competitors via EDGAR could cause substantial competitive harm to private issuers by providing visibility into funding cycles and amounts, business strategies, expenses and composition of management. The prospect of public availability of this information could have the further unintended consequence of discouraging private issuers from filing a Form D with respect to their offerings made in reliance on the exemptions from registration under Regulation D.
In addition, electronic filing of Form D would not further investor protection objectives under the Securities Act of 1933, as amended, and the informational disclosure requirements of Rule 502(a) under Regulation D. Since Form D is required to be filed within fifteen days after the first sale under any given offering, investors participating in the offering would receive no new material information as a result of the electronic filing. Furthermore, irrespective of whether the Commission would propose an amendment to the manner of offering limitations under Rule 502(c) to clarify that EDGAR filing of Form D would not constitute a general solicitation, the general accessibility to Form Ds would likely result in a significant increase in the number of unsolicited, and most often unwanted, inquiries made of private companies regarding investment opportunities.
We do not concur that filing Form D on the EDGAR system would "be more timely and cost-effective" than the paper filings currently required by the Commission and various states. Most private companies do not have a relationship with a financial printer or the practical capacity to prepare documents for EDGAR filing in-house. Costs of filing Form D via EDGAR, estimated between $180 and $400 per filing based on our conversations with several financial printers, far exceed current costs of paper Form D filings, which we estimate at $25 per filing. Compounded over an estimated one to three Form D filings by each of our private clients annually, the estimated cost differential is substantial.
For all of the reasons detailed above and on behalf of our many private clients who conduct offerings in reliance on the exemptions from registration provided by Regulation D, we strongly urge the Commission and NASAA not to proceed with requiring filing of Form D using the EDGAR system.
Thank you for the opportunity to raise these issues prior to the Annual Conference on Uniformity of Securities Laws. If we can be of further assistance, please contact the undersigned, Chris Westover (425/693-2066), or Eric Carnell (425/893-7736).
Very truly yours,
/s/ Mark P. Tanoury
Mark P. Tanoury
|1||Proposed Revision of Certain Exemptions from the Registration Provisions of the Securities Act of 1933 for Transactions Involving Limited Offers and Sales, Release No. 33-6339, [1981-1982 Transfer Binder] Fed. Sec. L. Rep. (CCH) ¶83,014 (Aug. 7, 1981).|