SEC Urges Company Disclosures on Fundraising During Market Frenzy

The Securities and Exchange Commission on Monday urged companies to provide specific disclosures if they plan to sell equity during periods of extreme market volatility.

The move came as U.S. regulators evaluate actions to take in response to the recent surge in the share prices of

GameStop Corp.

and certain other companies. The SEC last month vowed to stamp out any wrongdoing and the Treasury Department last week held a meeting with financial watchdogs to discuss the recent trading volatility.

Various companies have considered raising fresh funds to capitalize on high stock market valuations. Shelf registrations, for example, allow businesses to put in place legal paperwork for raising equity so they can issue shares more quickly when market conditions are favorable. More companies have turned to shelf registrations in recent months due to high market prices, according to Audit Analytics, a research firm.

The corporate-finance division of the SEC, which regulates U.S. securities markets, released guidance advising companies to provide tailored disclosures about their current finances, market events and the potential effect of share sales on investors.

The regulator provided a sample letter it may send to companies in which it asks for information, such as risks associated with the recent volatility in their share prices. The sample questions aren’t exhaustive, the SEC said. Based on responses, companies may be instructed to revise their financial disclosures.

Companies experiencing stock price volatility should also contact the office within the SEC’s corporate finance division that is responsible for their industry, the regulator said.

The guidance is particularly relevant because the SEC usually doesn’t review documents related to raising capital such as automatic shelf registration statements before they are acted upon. Many larger companies qualify for automatic registration based on their size and history of issuing securities.

The SEC may have recently received filings that didn’t address issues related to the market volatility, so it wants to be transparent about its expectations, said

Nicholas Losurdo,

a partner at the law firm Goodwin Procter LLP and former counsel to SEC Commissioner

Elad Roisman.

“Having this out there eliminates some guesswork for companies,” Mr. Losurdo said.

The SEC on Feb. 1 named

John Coates,

a professor of law and economics at Harvard University, as acting director of the corporate-finance division. The SEC is currently run by

Allison Herren Lee,

who is serving as acting chair. President Biden has nominated

Gary Gensler

to lead the SEC. Mr. Gensler headed the U.S. Commodity Futures Trading Commission from 2009 to 2014.

Write to Mark Maurer at [email protected]

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