SEC Didn't Go After Webvan Because of Its High Profile and Flush Partners

Webvan's IPO withered when this column cast light on the company's pre-IPO conduct. Now the Lashman opines on how the rules should change. Have your say on our message board.
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Now that online grocer


has pulled over into a "cooling-off" period for its initial public offering, the

Securities and Exchange Commission

has acquired a poster child for bad behavior during so-called quiet periods before an IPO. Less clear, however, is whether the SEC is on the ball regarding the way companies really behave when they're going public. More, the SEC's "crackdown" is likely to result in less, not more, information getting into the hands of individual investors. That's because after this episode, any company conducting an IPO would be nuts to talk to anyone from the media or any organization with whom they're not very accustomed to doing business.

Less information wasn't the goal.

Webvan: Join the discussion on


Message Boards.

To recap, this column on Wednesday carried a detailed

account of the many pieces of information Webvan presented to professional investors in its IPO roadshow that aren't in its S-1 registration statements with the SEC. That disclosure, reportedly coupled with concerns over other publicity Webvan has received lately, caused Webvan to delay its offering. The IPO, by the way, likely will be a barnburner when it does happen, provided the market remains hot.

Webvan's misfortune was the talk of the Internet community Wednesday as a there-but-for-the-grace-of-God-go-I mentality took hold. Any number of companies have behaved similarly to Webvan, but because neither the media nor individual investors are allowed into the closed-door roadshow sessions, the SEC isn't prompted to act.

And that gets to the question of where the SEC is on all this. Most folks think the SEC went after Webvan because it is big, high-profile, well-funded and associated with the heavy hitters of the Internet financial world including

Goldman Sachs


Benchmark Capital


Sequoia Capital

. I think that's bunk. The SEC socked it to Webvan because this column cast light on the company's questionable pre-IPO behavior. No disclosure in the

, no cooling-off period.

Indeed, the SEC doesn't even attend roadshows, so they would have no way of knowing what goes on there.

"We do not attend them because we're not invited either," says an SEC spokesman. "However, if we're made aware of any infractions or presentations of information that's not in the S-1, we take action."

So if a company hypes itself in a roadshow luncheon or in a one-on-one meeting with a major investor, the SEC will never know. Roadshows themselves are something of a throwback to an earlier era, when the Internet didn't allow for such easy dissemination of information. Presenting oral information about an offering is permissible, provided the information merely clarifies facts already in the SEC filings. The question then becomes if the additional information is "material," a term of art meaning critical information about an enterprise. Reasonable people can disagree about the materiality of the facts Webvan expanded upon in its roadshow, presented in bullet points in this space. The opinion of its lawyers on materiality issues will become evident when Webvan files a new amendment to its S-1 before trying again to go public.

Let's be clear on one thing: Roadshows aren't evil. Sure, the little guy is excluded. But that's no different than the way any business operates. An advertiser wanting to buy $1 million worth of banner ads on an online news site is going to get more attention than a reader forking over $100 for an annual subscription. That's just the way it works.

However, the entire notion of open capital markets is predicated on the free flow of information. I say either throw open the roadshow process to everyone (perhaps with limited question-asking opportunities for the press and other small fries, so they don't become a nuisance) or force companies back to discussing only their registration statements.

Finally, an ironic note. Webvan bragged on its roadshow that it has delivered 99% on-time performance in the last month, prompting one reader to write in that he and his wife have been in the other 1%. Twice. But the young company experienced a different kind of reliability problem Thursday evening that other Web companies have weathered when they find themselves in the public eye: Webvan's site went down. As this column was going to press, in the late afternoon on the West Coast, Webvan's home page carried the following message: "We're sorry. Our store is temporarily unavailable while it is being updated. It will be available shortly." And within an hour or so, it was again available.

Still, when it rains, it pours.

Adam Lashinsky's column appears Mondays, Wednesdays and Fridays. In keeping with TSC's editorial policy, he doesn't own or short individual stocks, although he owns stock in He also doesn't invest in hedge funds or other private investment partnerships. Lashinsky writes a column for Fortune called the Wired Investor, and is a frequent commentator on public radio's Marketplace program. He welcomes your feedback at