Client Alert

SEC Formalizes Its Positions on PIPE Transactions

June 18, 2007

Jeff Hartlin, Elizabeth Brower and Michael Zuppone

Private investment in public equity offerings, labeled PIPEs by market participants, have become a permanent alternative for raising equity capital by public companies in need of financing. Pursuant to informal guidance issued by the Staff of the Securities and Exchange Commission in the mid 1990s, PIPEs have been treated as completed private placements not subject to integration with subsequent registered secondary offerings by selling securityholders. Under this guidance, PIPE investors have been able to have the shares issued in (or the shares underlying convertible securities issued in) the PIPE transaction registered for public resale into the trading market concurrently with or soon after the closing of the PIPE transaction. Recently, as described below, the treatment of PIPEs investors in registered offerings as just selling securityholders, as opposed to statutory underwriters, has been called into question in certain circumstances.

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