SAN FRANCISCO -- When does a Web site turn into a prospectus? That's the question raised by priceline.com.
IPO candidate priceline.com has added text to its site that invites customers to learn more about and participate in its IPO -- a move two securities attorneys consider a possible violation of securities laws. The move also highlights another question about the new face of IPOs in the Internet age: As online brokers offer stock to a new class of investors who don't or can't attend road shows, how can a company inform potential investors of an offering without appearing to regulators to be making a solicitation?
The company, which filed for an IPO last December, allows consumers to bid on airline tickets and hotel rooms. Customers who visit priceline.com to make bids are presented with two links on the home page that offer information about the IPO. One is a yellow box in the center of the page that says, "Interested in learning about our IPO?
can tell you how. Click here." A separate link that reads "About our IPO" appears on the left side of the page. Clicking on either link brings up another page on priceline.com that has as its title line above the browser's tool bar: "Buy Priceline.com Shares at E*Trade."
"Wow," says Sara Brody, a securities lawyer at
Brobeck Phleger & Harrison
. "Companies are not supposed to market their own stock in that manner." She says that this kind of information could be seen as hyping the stock. And the extensive amount of information on the Web site, including where to buy shares and how to set up an E*Trade account to buy those shares, goes outside of what is considered acceptable for companies that are in registration for a public offering, Brody says.
The company disagrees. "We've been advised by counsel that this is not a solicitation," says a company spokesman who asked not to be identified because of priceline.com's quiet period. "All you need to do is read the disclaimer."
At the bottom of the
online letter to priceline.com customers, there is a paragraph that says: "This letter shall not constitute an offer to sell or a solicitation of an offer to buy nor shall there be any sale of any securities which are the subject matter hereof in any state in which such offer, solicitation or sale would be unlawful prior to the registration or qualification under the securities laws of any such state."
Securities and Exchange Commission
rules discourage companies from providing information about their IPOs beyond the official prospectus, including any comment on the company's prospects.
Information about an IPO on a company's Web site could be seen as flaunting the positive sides of an offering without the necessary explanation of risk factors. "Instead of a legal document where people agonize over where every comma goes," Brody says, putting selected information on a Web site can create "a prospectus with all of the pros and none of the risk factors," she says.
"It's solicitation," adds Richard Friedman, a securities lawyer at
Heller Ehrman White McAuliffe
in Palo Alto, Calif., upon perusing priceline.com's site. "It's aggressive."
While unusual, priceline.com's move may not sound alarms at the SEC. "They might be in violation of the law. But does anyone care? That's the real question," says Friedman.
The SEC won't comment on priceline.com's site. But spokesman Duncan King says there is a "gray area" between circulating information about an offering and promoting it. If the SEC thinks that a company is too aggressive in its distribution of information about an offering, regulators may suggest that the company hold off on its IPO until the market's enthusiasm settles down. The SEC doesn't disclose when it takes such steps.
The company says it will take the IPO information down "as we approach the IPO," priceline.com's spokesman says. But he didn't say when that would be.