The Quiet Period: Why Facebook Can’t Say Much About Going Public

Recently, Groupon got into big trouble after talking a bit too much during the infamous quiet period before a company goes public.  From Facebook isn’t more than a whisper, choosing instead to follow the government rule to keep quit. Companies are told to keep quiet so they don’t inflate the value of their stocks by hyping them weeks before going public, a rule instituted in 1933.  Facebook filed on Feb 1^st but won’t actually go public for several months.

In some 70 years following this rule’s enactment the rules changed in 2005.  The Securities and Exchange commission laid out exactly what companies can and can’t say during the weeks leading up to being traded publicly.  This is an aim to keep companies from manipulating the value of their stock, but allow them to operate as planned leading up to it.

The change in 2005 basically sets forth simple communication guidelines.  Companies can communicate with their normal business partners and clients, but this communication can’t speak to goals projections or differ in scope from their previous communication.

If a company chooses to ignore these guidelines, the SEC can take action to delay the IPO and the share-holders can if they feel the company made any false statements.

Since the rules have changed, some lawyers have been unsure of some interpretations.  In this light, most companies are advised to stay extra silent.  This ensures there aren’t any issues.  This has heart the tech industry particularly hard, which has a history of being very vocal about their companies.

Companies used to distribute something called the Red Herring.  This document lists all risk factors, caution and communicates to potential investors that the shares aren’t yet for sale.  Now companies merely have to provide links to this document.  They can use whatever marketing materials they want, so long as nothing contradicts the anything in the document.  This way, investors are aware of any potentials issues before making any decisions to buy stock.