Conoco Inc. made history last October when it raised $4.4 billion in the biggest initial public offering ever.
Conoco executives, though, didn't want to talk about it. They didn't want to discuss the company's strategy, prospects for oil prices, acquisitions they might pursue or anything else investors might want to know before plunking down their money.
Instead, the executives issued a news release saying that because of intense media coverage, the Houston-based oil company would "adhere to the most strict interpretation of the SEC 'quiet period' regulations."
Those Securities and Exchange Commission regulations, however, don't exist. Like dozens of other companies that have filed to sell stock in the past year--from United Parcel Service of America Inc. to software maker Inktomi Corp.--Conoco was citing one of the most enduring myths in U.S. business.
"It's really been kind of a nonsense thing," said James Arkebauer, a Colorado management consultant and author of a book on taking companies public. "It's always been motivated more by the legal profession than by the SEC."
Conoco entered its quiet period May 11, 1998, when former parent DuPont Co. said it planned to sell stock in the energy company to the public. The silence continued through mid-November.
"Our attorneys encouraged us to err on the conservative side because the IPO, from the outset, looked like it could be one of the largest in history," Conoco spokeswoman Sondra Fowler said.
Actions such as Conoco's have spurred the SEC staff to review the rules governing public stock offerings. Right now, companies are prohibited only from making statements that could be seen as promoting the stock. They're free to discuss any other aspect of their business.
The proposed changes would lift restrictions even on promotional statements, eliminating the concerns that prompt companies such as Conoco to enter months of silence. The agency could decide on rule changes as early as next year.
Such changes could benefit investors at a time when U.S. businesses are raising more money than ever by going public--$35.4 billion in the first half, up from a record $29.9 billion in the year-ago period, according to CommScan, a New York-based investment-banking research firm.
The SEC never intended to create a blackout.
"The rules are, you do not have to go completely quiet," said Brian Lane, head of the SEC's corporate finance division. "It is the company and its counsel's job to decide what they're going to say."
At the same time, companies must be careful not to run afoul of SEC regulators who monitor what a company says for statements that could boost the value of the transaction.
"SEC says you have strict liability if you make statements before the offering that are likely to condition the market," said John Coffee, a professor of securities law at Columbia University.
What exactly constitutes sales hype is open to interpretation.
The SEC might view an offhand comment by an executive as touting the shares. As a result, many companies choose to clam up rather than risk delaying a stock sale that could be worth hundreds of millions of dollars.
"The safest thing from the companies' point of view is to just not say anything," said Joseph Richardson, a corporate lawyer with Bryan, Cave LLP in Phoenix. He helped write a 1993 analysis of SEC regulations on stock sales that many companies such as Conoco still cite as a guideline.
Another worry for many companies: They may be sued if the stock or the company's financial results don't live up to expectations, said Wayne Shaw, an accounting professor with the Cox School of Business at Southern Methodist University in Dallas who has studied IPOs.
Shareholders are filing more complaints than ever against companies for declining stock prices, according to a December study by David M. Levine, a senior SEC official, and Adam Pritchard, a University of Michigan law professor. The study found that shareholders sued 118 companies in the first six months of 1998, and at that pace, the number of class-action suits would exceed the previous record of 227 in 1994.
"The risk of saying things is just too great," Shaw said.
Many companies, though, don't hesitate to hold promotional tours, known as roadshows, to talk up their shares to institutional investors.
"They're pretty confident that institutional investors are not going to sue them," Coffee said, adding that the practice is unfair to smaller investors.
Invoking the quiet period runs counter to a key aim of the 1934 Securities Exchange Act. That law was designed to protect investors by ensuring that companies disclose everything needed to make an informed decision. It also was supposed to prevent companies from making unrealistic promises about sales or products just to boost their shares.
In pursuing the latter goal, companies often neglect the former, squelching information that might be useful for investors.
Azurix Inc., for example, declined to grant interviews with chief executive Rebecca Mark when the water-utility operator was spun off from Enron Corp. in June.
"Rebecca is a very high-profile executive, and any story or media coverage of her generally creates quite a bit of readership," said Diane Bazelides, a spokeswoman for Houston-based Azurix. "It could have been viewed by the SEC that we were trying to market her or market the company."
Mark, 46, is one of the highest-ranking women in U.S. business. Investors may have wondered about her strategy for running a water company and how she planned to compete with overseas rivals, many of which have years of experience in the business.
"For investors, it's always nice to know what the opinions are of the executives at a company that's going public," said Steven Tuen, director of research for IPO Value Monitor.
Some companies might be better off staying quiet.
When USN Communications Inc., a Chicago-based provider of local telephone service, went public in February 1998, its officers freely discussed the company's plan to compete with regional Bell companies by expanding through acquisitions.
A year later, the company filed for bankruptcy. Shareholders sued, accusing executives of making false promises at the time of the IPO.
If the SEC rule changes are adopted, most restrictions on companies with a market value of $250 million or more would end.
"These people would have total freedom to say whatever they want," Lane said. Companies still would be subject to anti-fraud provisions against false or misleading statements, he added.
In other words, executives could hype all they wanted, provided what they said was true.
For companies below the $250 million threshold, existing restrictions would apply for 30 days before the offering is filed.
Shaw, the SMU professor, said SEC rule changes aren't likely to change companies' behavior as long as the threat of lawsuits remains.
Meantime, companies such as Conoco continue to shut out investors. DuPont said in April that it would split off its remaining 70 percent stake in Conoco in a share exchange worth as much as $11.5 billion. The transaction, valued at $21 billion, was completed in August.
For the second time in less than a year, Conoco said it was in a quiet period.