Twitter's 'secret' IPO puts investors in the dark, for now

Fri Sep 13, 2013 6:52pm EDT
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By Sarah N. Lynch

WASHINGTON (Reuters) - Twitter's use of a confidential initial public offering filing has reignited a debate about a 2012 U.S. law that critics say denies investors time to digest a company's financial information and erodes the widely-held value of market transparency.

The social media giant can use the more secretive process thanks to the Jumpstart Our Business Startups (JOBS) Act, which loosened a number of federal securities regulations in hopes of boosting capital raising, and thereby increasing job growth.

It included a provision known as the IPO on-ramp that allowed "emerging growth companies" to keep draft filings with the Securities and Exchange Commission under wraps while negotiations over the disclosures occur.

Companies that don't meet the emerging growth criteria must release their IPO filings, usually with hundreds of pages of detail about their financial condition, risk factors and ownership and management structure, months before they sell their shares.

This gives investors, financial analysts and journalists a lot longer to analyze the company's prospects.

In the case of Twitter and other emerging growth companies, they can delay the release until 21 days before a roadshow to investors, which usually precedes the share sale by only a few days or weeks.

They can also can disclose less information about pay for executives and directors, and gauge interest by sophisticated investors prior to filing IPO documents with the SEC.

The law helps true startups test the regulatory process for an IPO without worrying about bad publicity if they decide to later withdraw their paperwork. It also allows companies to keep information from their rivals for longer.   Continued...

A news ticker in New York's Times Square announces an initial public offering for Twitter Inc. September 13, 2013. REUTERS/Eric Thayer