7.4. Gun-Jumping Safe Harbors

Issuers and underwriters must be very careful about how they communicate to potential investors and the general public regarding securities that are not yet fully registered. Recall from the last chapter how broad the definition of a prospectus is. To help issuers and underwriters avoid unauthorized communication, known as gun-jumping, the SEC has developed a set of “safe harbor” rules.

A safe harbor is a provision in a law (or in a regulation based on that law) that specifies circumstances under which a person acting in good faith will not be found in violation. Each of the safe harbor rules described below defines a type of communication that will not violate the Securities Act’s prohibition on unauthorized offers. However, none of these provide safe harbor from the Act’s anti-fraud provisions.

The following are the gun-jumping safe harbors that most commonly appear on the exam. Some of these safe harbors apply to the pre-filing period, some to the cooling-off period, and some to both. A communication can fall under more than one safe harbor rule, a fact which can become important if a rule or its interpretation changes.

Communications not deemed a prospectus. This safe harbor only applies after the registration statement is filed. It allows the issuer or a distribution participant to communicate basic information about the offering without it being considered a prospectus. This information includes:

• General factual information about the issuer and a brief description of the issuer’s business

• The title, amount, and designation of the securities being offered

• The price (or estimated price range) of the security

• For fixed-income securities, the maturity, interest rate, and yield

• A brief description of the intended use of the proceeds (if disclosed in the prospectus)

• The names and roles of underwriters and the type of underwriting

• For communications from a