Even Before Webvan, Quiet-Period Questions Vexed SEC

The Securities and Exchange Commission made a big splash this week in putting the brakes on online grocer Webvan's IPO plans. But even the SEC is uncertain about whether it needs to play the bad cop when it comes to so-called quiet periods.

For the past year, the SEC has been planning to revamp its own guidelines for companies going public. But those plans have been put on ice, in part because the official in charge has resigned and the agency hasn't found a replacement.

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Last fall, the commission issued a proposal, nicknamed the "aircraft carrier" because of its size, to overhaul the entire offering process and ease quiet-period restrictions. Issuers would have more freedom in which to communicate with investors before an offering. At the moment, companies planning to go public enter a quiet period that restricts hype before an offering and up to 25 days after a stock starts trading.

"Part of the [proposal] was to make it more flexible for IPOs," says Brian Lane, the head of the SEC's division of corporation finance who will leave at year-end. "It was the factor of what to do with controlling the flow of information when you live in the information age, and whether it makes the same sense today as it did 66 years ago."

An SEC spokesman confirmed a replacement for Lane hasn't been found, and added that the aircraft-carrier proposal is pending.

David Bayless, who served for five years as the head of the SEC's San Francisco bureau until his resignation in June, says Lane's vision was to change the entire registration process. "I think his feeling was they need fundamental changes," says Bayless, who is a partner with Morrison & Foerster in San Francisco.

"The commission realizes there are problems, but until you get a new head of that division, it isn't going to do anything about it," Bayless adds. It's uncertain whether the new director will have a similar vision.

"I can't really say what the next director's going to do, but presumably he might pick up that project and move it forward," says Lane, who has been with the SEC for 16 years, the last 3 1/2 as division director.

In the age of the Internet and round-the-clock financial news, it's become de rigueur for companies about to go public to launch attention-getting PR blitzes and ad campaigns before an IPO.

"I don't think anyone abides by the quiet period," says internet.com analyst Tom Taulli. "It seems like the SEC doesn't really enforce the quiet period."

On Oct. 1, Digital Insight (DGIN Quote), an online banking services provider, went so far as to invite the press to a champagne breakfast at the Nasdaq Market Site on the day of its IPO. Before the stock began trading, the CEO and founder sat down with a reporter to discuss plans for expansion. And they were looking forward to the start of trading.

"We're fairly confident it'll trade well," founder Paul Fiore said. After the market closed, the company's executives appeared on CNBC and CNNfn. That appearance on CNBC is becoming a de facto requirement.

Tickets.com this week petitioned the press via email to meet with its CEO, even though the company is in registration to go public. NaviSite, a Net infrastructure company that is also in registration, welcomed reporters at Internet World in New York this week to discuss its position and plans to expand facilities and network capabilities. When asked about the quiet period, marketing Vice President Jay Seaton explained, "It's really hard. [Our lawyers] said, 'Don't talk to people.' "

So companies want to talk, and today there are hundreds of outlets willing to listen. The problem for the SEC is how to regulate this conversation.

"Everyone's claiming the world's changed and here is one place where it really has," says Josh Lerner, professor of business administration at Harvard Business School. "It's clear there's going to be a substantial need for rethinking these issues."

But nothing major will happen until the SEC finds a replacement for Lane. And until the SEC does make changes, companies about to go public would be advised to stay quiet, lest they risk the same fate as Webvan. Says Walt Moeling, with Powell Goldstein Frazer & Murphy in Atlanta, "Don't do something that's going to jeopardize someone giving you 30 million bucks."