Here’s something you don’t see every day — last week, the SEC brought settled enforcement actions against an issuer and an underwriter for failing to deliver final prospectuses in connection with various shelf takedowns. Here’s an excerpt from the SEC’s press release announcing the proceedings:
The SEC’s orders find that NFS and FuelCell violated the prospectus delivery provisions of Section 5(b) of the Securities Act of 1933. The order charging NFS finds that it violated the underwriter prospectus delivery provisions of Securities Act Rule 173, and failed reasonably to supervise the traders that sold the FuelCell securities within the meaning of Section 15(b)(4)(E) of the Securities Exchange Act of 1934 and Section 203(e)(6) of the Investment Advisers Act of 1940.
Without admitting or denying the SEC’s findings, NFS and FuelCell have agreed to cease and desist from committing or causing any future violations of the charged provisions. In addition, NFS has agreed to be censured and has agreed to disgorge $797,905 in commissions, pay prejudgment interest of $163,288, and pay a penalty of $1,500,000. The SEC’s order against FuelCell recognized the company’s cooperation and self-report, both of which the SEC considered in determining not to impose a penalty against the company.
The genesis of the problem appears to have been the company’s failure to file 424(b) prospectuses in connection with its ATM offerings. That in turn led to violations of Section 5 by both the company and its underwriter. Their misfortune is our gain, however, because the SEC’s orders are a primer on the prospectus delivery requirement and the interplay between the statute and the rules governing the filing and delivery of the final prospectus.
I know from my own experience and from our Q&A Forum that there’s not a lot out there that ties all of these requirements together — and these orders do.
By the way, I missed this enforcement action when it was first announced, but fortunately Ann Lipton flagged a Bloomberg Law article on it on her Twitter feed. If you practice corporate or securities law and you don’t follow Ann on social media, you’re making a big mistake. As my cousins from Maine would say, she’s “wicked smaht” & she posts all the time. You’ll learn a lot from her.
-John Jenkins, TheCorporateCounsel.net September 10, 2020
