There Ain't No Such Thing As a Free Prospectus

A free writing prospectus ' which is any written offer outside of the statutory prospectus ' can take many forms: printed materials, e-mails, Internet Web sites, radio or television broadcasts, faxes, and even widely distributed voice mails. It can contain any information, including information not contained in the registration statement as long as there is no conflict. A free writing prospectus usually needs to be filed with the SEC by the issuer, but not by underwriters unless it is likely to be broadly disseminated. Furthermore, it must contain a legend advising the potential investor to read the registration statement and indicating how it can be obtained. While many issuers still need to have a registration statement on file to use free writing prospectuses, well-known seasoned issuers can now make written offers even before filing through free writing prospectuses.

The free writing prospectus has the advantage of carrying less potential liability than the usual statutory prospectus. Much of recent securities fraud litigation has been under ' 11 and ' 12(a)(2) of the Securities Act of 1933, two sections that often overlap, but are distinct. Great news ' but: ' 11 establishes liability for misstatements in a registration statement, which include the final prospectus and Exchange Act reports that are incorporated by reference. A free writing prospectus, since it is not considered part of the registration statement, does not carry ' 11 liability. Section 12(a)(2) establishes liability for misstatements in a 'prospectus.' And, like a statutory prospectus or final prospectus, a free writing prospectus still carries ' 12(a)(2) liability. Issuers and underwriters using free writing prospectuses should be well aware of this point.