Sun, Sep 26, 2004 page12

• Companies about to go public urged to be discreet

  The SEC's drive to sniff out and punish corporate misconduct has muted the media hype that used to surround an initial public offering

  • NY TIMES NEWS SERVICE
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  There was a time, not so long ago, when a company poised to go public would invite a reporter inside to memorialize the moments leading up to the blessed event. Photographs of founders toasting their stock market debut with plastic cups of bubbly were a staple of magazine articles. And so often did chief executives of newly minted public companies show up on CNBC on their big day that the appearances seemed a rite of passage, not unlike a victory lap.

  But no more. Like so much in the post-Enron world, the quiet period -- which begins when a company files paperwork to go public and ends no sooner than 25 days after its stock starts trading -- has been redefined. Where once lawyers offered a nuanced interpretation of what the Securities and Exchange Commission permitted during the quiet period, clients in recent months are hearing a far simpler message: Place a mute in your mouth and just shrug whenever a reporter or television producer comes knocking.

  "In almost every case that a media opportunity comes up, what advisers are telling clients is, `Keep your mouth shut,"' said Scott Dettmer, a lawyer who for 20 years has been counseling companies through public offerings. "Given the way the SEC has been lately, we're telling them: `Get the offering done. And then after that let's talk about how you communicate with the outside world."'

  Dettmer is a founding partner at Gunderson Dettmer, a law firm in Menlo Park, California.

  Lawyers who advise companies about going public note that there has been no significant change in the law. The shift in attitude, they say, has been driven primarily by a pair of actions taken by the SEC over the past several months.

  In June, the commission postponed by several weeks the public offering of Salesforce.com after its chief executive, Marc Benioff, agreed to be profiled in the New York Times, though his company was in the quiet period. In August, the world had to wait at least a few extra days to witness Google's much-ballyhooed public offering after investigators expressed displeasure over the decision by the company's two founders to submit to a lengthy interview with Playboy magazine.

  "I'm being more conservative," said Michael Sullivan, a lawyer at Howard Rice Nemerovski Canady Falk & Rabkin in San Francisco who estimates that he has served as an adviser to 50 IPOs in the last 10 years.

  The question of whether to accept interview requests during the quiet period has long pitted company executives -- and their desire to tell the world about their creation -- against their lawyers, who invariably counsel caution. Executives are confident that they can deftly avoid any comments that may draw the attention of regulators -- hyping the stock, say, or even slightly contradicting something that the company reported in the registration statement it filed with the SEC. The lawyers, meanwhile, are keenly aware of potential pitfalls. Benioff agreed to allow a reporter to follow him around for the better part of a day during the quiet period, despite the strident objections of his legal counsel. "Salesforce really brought the conflict between client and attorney front and center," Dettmer said.

  Some lawyers describe themselves as ever more cautious, but others say the real change is in the attitude of those paying US$500 or more an hour for their advice. "The difference is, clients are more sensitized to the consequences of a violation," said Jeff Stein, a senior partner in the corporate finance group at the law firm King & Spalding, based in Atlanta. "They've seen what's happened to a Salesforce or a Google. They pay more attention when we raise concerns."

  Like Stein, Michael Zuppone, a partner at Paul, Hastings, Janofsky & Walker in New York, said he gives more or less the same advice today that he did five years ago. "Even during that zany era, we were counseling against an appearance on CNBC the day of a public offering," he said. "There's a real risk even in a delay of two or three weeks," Zuppone said. "Capital markets are funny creatures. A market can turn from strong to weak in those two or three weeks. And then the deal might not get done for a year."

  There is also the stigma of the "black eye" suffered by any company accused of a quiet-period violation, said Jay Strum, a partner with Kaye Scholer in New York who has specialized in securities law for 42 years. In the past, though, lawyers had to talk primarily in hypotheticals about what might happen if a company attracted the unwanted attention of regulators during the quiet period. "Now you can readily point to the Google problem, or the Salesforce problem, as concrete examples of what happens rather than talking in the abstract," said Zuppone, who was the branch manager of the SEC's New York office before going into private practice.
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