Disclosure in the Context of Extreme Price Volatility: Guidance from the Division of Corporation Finance
The SEC’s Division of Corporation Finance this week issued a public statement and related comments directed at companies seeking to raise capital in times of extreme stock price volatility, emphasizing that raising capital in such circumstances warrants the provision of specific, tailored disclosure to ensure investors have adequate information to make informed investment decisions. In its statement, the SEC specifically refers to companies that may be experiencing high short interest, reported short squeezes or reports of strong and atypical retail investor interest, including on social media. The SEC suggests impacted companies provide information on the prospectus cover page regarding recent stock price volatility, comparative stock price information prior to the volatile period, and any recent changes (or the absence of changes) in the company’s financial condition or results of operations. The SEC’s illustrative comments also suggest adding risk factors on price volatility and short squeeze investor risk, including a description of what typically happens after a short squeeze, as well as explaining in the use of proceeds disclosure that the company may not be successful in raising the maximum offering amount, and its priorities for received proceeds.