The SEC’s stealth revisions to Rule 415 has confused and alarmed the PIPE market by raising the suggestion that large private placements relative to a company’s float constitute primary offerings. Recent actions have imposed new limitations on PIPE financing by micro cap companies that threaten to cut off their access to capital.

“The gist of the re-interpretation, which remains without any as-yet defined boundaries, is that large raises for small companies constitute “underwritings”, that the investors in such deals are “underwriters”, and that such “underwriters” must sell to the market at one fixed, pre-determined price, as in a firm-commitment IPO. Sales into the market at prevailing prices are not acceptable. The size of the deal compared to the float of the company is key. We don’t know whether it is 10%, 20%, 30% or 50%, but there is some trigger where the deal ceases to be a “resale” and becomes a primary offering. There arises therefore a question about “aggregation” as well as many other questions. “

For a good explanation of Rule 415 which went into effect December 1^st, 2005, please go to the Nixon Peabody, LLP site to review their article.

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