Larry Summers may have just violated Square's pre-IPO quiet period

Larry Summers is known for sounding off.

But on Tuesday at the Economist Buttonwood conference in midtown Manhattan, the former Treasury sectetary might have gone too far.

“Square — a company where I’m on the board of directors — basically handles small businesses’ payments,” Summers said Tuesday.

“And that puts it in a position to have much better information and much a better cash flow stream, so that it is able to lend in ways that someone who didn’t have that relationship would not be able to lend.”

That could be interpreted as a violation of the Securities and Exchange Commission’s ‘quiet period,’ in which company officials are prohibited from making public statements about the business.

Industry veterans had a mixed response to Summers’ comments. 

“He should not be saying anything that could be perceived as hyping or promoting the financials of the company,” said one tech IPO veteran, who asked to be not named.

“Companies don’t always get reprimanded for this but the prudent course is always to err on the side of caution.”

A former Securities and Exchange Commission lawyer said Summers and Square are “probably safe,” adding companies going public “need to be hyper-vigilant these days,” and said the statement was still “close to [the] line.”

To be sure Square isn’t in the critical period of marketing its IPO yet. Were that the case the public comments could actually cause a delay in the debut.

Square did not respond to emails late on Tuesday seeking comment in time for publication. A representative for Summers didn’t immediately respond for comment. 

His comments came during the conference’s afternoon one-on-one interview with Economist editor-in-chief Zanny Minton Beddoes, aptly titled: What will the fintech revolution mean for the economy? (His comments on Square begin just before the 7:32 mark). 

Square filed for its initial public offering last week, and touted the growth of small businesses as a trend in its favour.

It said in the filing: “We believe small businesses will continue to drive the economy as entrepreneurial activity creates millions of businesses each year.”

This wouldn’t be the first time a major tech company regretted a big interview leading up to an IPO.

When Google co-founders Sergey Brin and Larry Page granted Playboy an interview more than 10 years ago, it turned out they mistakenly violated Google’s quiet period.

An update to paperwork filed with the SEC after the interview stated: “Risk factors — if our involvement in a September 2004 article about Google were held to be in violation of the Securities Act of 1933, we could be required to repurchase securities sold in this offering.” 

They made up for it — by never granting another interview.

But, it’s highly unlikely that Summers will go down that route.

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