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US companies found a loophole in the Securities Act of 1933 against the background of the “shatdaun” in the US

All applications for IPO were to be approved by the SEC, but the regulator suspended work with the government, and the business had to find a way out.

Biotechnology company Gossamer Bio Inc. said it would hold an initial public offering (IPO) without obtaining approval from the US Securities Commission. New Fortress Energy LLC plans to take the same step because there is no one to approve the applications that meet the law.

The company decided to take advantage of a little-known loophole in the law of the Securities Act of 1933 (The Securities Act of 1933), which allows for the placement of shares on the stock exchange without the approval of the SEC. To do this, it is enough to report that the application will take effect automatically 20 days after the submission – this is exactly what Gossamer Bio did.

In its application, the company said it expects to raise $ 230 million, selling 14.4 million shares at a price of $ 16 per share. Gossamer Bio warned potential investors that this method of access to the stock exchange could lead to a number of adverse consequences, for example, if later the CSD had questions. The company noted that they will not use a workaround if the government resumes work until February 12.

One of the managing partners of Simpson Thacher & Bartlett, Kevin Kennedy (Kevin Kennedy), engaged in an IPO, noted that such a step is “extremely unusual”, although the loophole has long been available to companies. According to him, many would not use it, because it requires to evaluate their own shares before entering the stock exchange, and this may be less profitable than the rate set by the market.

The WSJ interlocutors also clarified that the NASDAQ exchange and banks fear possible problems with regulators and laws when using loopholes. They could not remember a single case when someone used this method.

However, as Kennedy noted, biotech companies could have no other way out. Many of them have no income, but are in dire need of money.

[perfectpullquote align=”full” bordertop=”false” cite=”” link=”” color=”” class=”” size=””]For them, it is not a question of choice – they must find the money or close.[/perfectpullquote]
Kevin Kennedy
managing partner of Simpson Thacher & Bartlett

According to the lawyer, firms from other areas will not be able to take advantage of the loophole. Their financial reports are more complicated, and the SEC shows more attention to them.

The Securities Commission stopped working together with other departments because of the government’s “ shatdaun ”: politicians could not agree on a country’s budget for 2019 for more than a month. Because of this, the SEC sent thousands of employees on unpaid leave and stopped accepting IPO applications.

The US government partially suspended work in late December. By January 12, the “shatdaun” of 2019 was the longest in the history of the country. Due to the suspension of the government’s work, national parks flooded debris and feces, and scientists were unable to update the magnetic model of the Earth in time – this threatens navigation system errors.

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