The EDGARization of the “secret review” — brought to you by the JOBS Act
With a flair for the hyperbolic, we recently referred to confidential submissions of IPO filings – one of the perks available to Emerging Growth Companies (EGCs) under the JOBS Act – as “cloak & dagger IPOs.” While they may not be as nefarious as that rhetorical flourish suggests, there’s no doubt that the precedent of a “secret review process” for going public has made some observers uneasy.
It’s hard to know what critics will make of the latest move by the SEC – effective today, October 1 – in implementing the confidential submissions provision. The SEC now offers a brand new, dedicated form type, Form DRS (“Draft Registration Statement”), for qualifying companies who want to “test the waters” by filing their IPO paperwork behind closed doors.
A key difference with Form DRS is that it allows companies to file privately through EDGAR’s front door. Up to now, such filers had to use the template for a conventional registration statement such as an S-1, slap a “confidential” label on the cover page, then send it to the SEC via the agency’s “secure email system.” Then (are you still following along?), if the IPO went forward — requiring the retroactive disclosure of the original filing — the once-confidential document would be appended to a later amended registration statement as an exhibit – through the back door, in a sense. We can find examples on the Knowledge Mosaic SEC Filings page with a targeted query; the latest is this S-1 from Paratek Pharmaceuticals, Inc. , daylighted on September 27.
As of today, filers who are ready to daylight their confidential registration can do so with just a click or two of the mouse. Last week, the SEC published a 32-page PDF of instructions for prospective DRS filers. As the last few pages of the document explain, disseminating your DRS publicly is as easy as clicking a button (conveniently labeled “Disseminate”). And since Form DRS will presumably still be called Form DRS when it hits EDGAR, locating confidential submissions that have gone public will get much easier.
In that way, the EDGARization of confidential submissions perhaps makes the whole process less opaque, less shadowy. . . . Or at least that’s one perspective. At the other end of the spectrum, one could argue that the main effect of the new DRS system is to institutionalize nefariousness by creating a highly visible and official mechanism for it. (Some readers may recall Foucault’s comparable arguments about capital punishment in Discipline and Punish.) And that mechanism is EDGAR itself, the system originally promoted as a vehicle for making data free and accessible.