Photo: AP Photo
Did Groupon just shoot its IPO in the foot?Maybe so.
Earlier, we speculated that, after having a detailed memo about its business leaked to the press, Groupon might have run afoul of SEC “quiet period” rules, which prevent companies from saying much in the months leading up to their IPO.
(We think this rule is a ludicrous rule and should be eliminated, but it’s still a rule.)
And now Cory Johnson of Bloomberg has reminded us that there is actually precedent for an IPO being pulled after exactly this kind of event—an “internal memo” from a CEO blasting critics and hyping the company found its way onto the Internet and attracted the ire of the SEC.
The company was Wired. And the year was 1996.
…Wired publisher Louis Rossetto may have inadvertently broken SEC rules by being too noisy during the company’s “quiet period.”
According to TheStreet.com, an on-line newsletter that follows Wall Street, Rossetto circulated an e-mail last week meant to boost the morale of the 300-plus people who work for Wired Ventures, which includes the print magazine, as well as HotWired, the on-line edition, and HardWired, the book-publishing division.
Rossetto’s e-mail called Wired Ventures “a company of great people who make great products,” and blamed “bad journalism” for undermining Wired’s image on Wall Street.
Although intended as an internal memo for employees, the e-mail was posted on The Well, a Sausalito-based on-line bulletin board with 10,000 subscribers. From there it was leaked over the wider Internet. The result: Rossetto’s optimistic views on his company were sent around the world, just before the planned IPO.
Companies going public can’t tell potential investors anything that isn’t in the prospectus during the “quiet period” between when the company registers to go public and a few weeks after it has begun trading.
But Rossetto’s memo labelled financial press reports sceptical of the IPO, “shoddy, if not malicious.” In the memo he said the company was “hampered in our ability to defend ourselves by the SEC’s so-called ‘quiet period’,” and talked about the company’s “great business” plans for Wired, HardWired and Wired TV’s coming Netizen television show.
Meredith Cross, the SEC’s deputy director for corporation finance, said the agency’s policy isn’t to comment on any company’s filings. But John Stoppelman, a Washington lawyer who is a former chairman of the SEC’s task force on investigation rules, said the memo’s Internet circulation was likely to get the notice of SEC regulators.
This situation is very similar to Groupon’s. Groupon CEO Andrew Mason said in his email that he was prompted to write it by criticism of the company in the blogosphere. And now his email has gone public on the Internet (in what we suspect was a “leak” orchestrated by someone at the company).
The sharp drop in the stock market combined with concerns about Groupon’s business have already made its IPO more challenging. If the SEC gets involved with the email leak, it’s conceivable that the IPO might have to be further delayed.
(And that, unfortunately, might mean that the company would have to look for another source of cash, which it is running low on…)