Toward Disclosure Choice in Securities Offerings

Friday, January 1st, 1999 at 12:00 am by Alan R. Palmiter
Alan R. Palmiter, Toward Disclosure Choice in Securities Offerings, 1999 Colum. Bus. L. Rev. 1

U.S. securities regulation is mandatory. So goes the refrain. But is it still true? Over the last two decades, a fundamental rethinking of the federal laws that govern securities offerings has eroded the mandatory nature of securities regulation. The new reality is that firms, in burgeoning contexts, can raise investment capital without subjecting themselves to the Securities and Exchange Commission’s (“SEC”) full-blown disclosure requirements or the heightened antifraud standards of the Securities Act of 1933 (the “Securities Act”). Underlying this regulatory transformation has been a subtle, but powerful rethinking of the twin tenets that have animated securities regulation for more than half a century — namely, manager informational shirking and investor helplessness. No longer can managers, if they ever could, dictate the informational terms on which their firms raise capital. More important, the prototypical investor is no longer our helpless and guileless grandmother, but has become instead our connected and savvy rich uncle. As a normative matter, this article proposes the adoption of an enabling legal structure in which issuers can choose the disclosure level appropriate for their securities offerings. Just as U.S. corporate law over the last century has become largely facilitative, enabling corporate managers with investor concurrence to tailor virtually all aspects of their state-based relationships, securities regulation of capital formation should be seen as a subset of the private ordering by capital users and providers. Intermediated by markets and securities professionals, the disclosure aspects of the issuer-investor relationship in securities offerings should be a matter of choice, giving issuers the latitude to supply the firm-specific information that investors demand and are willing to pay for.

Author Information

Professors of Law, Wake Forest University School of Law