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What Is "Gun-Jumping" in Reference to IPOs?

Under the Securities and Exchange Act of 1933, after a company goes through an Initial Public Offering (IPO) registration with the Securities and Exchange Commission, there is a "quiet period" for at least 25 days afterwards. During this time the company cannot release any information to its underwriters that was not already available through usual corporate communications and the company prospectus.

"Gun-jumping" occurs when a company violates this quiet period by releasing information to the public that goes further than the usual advertising programs and earnings releases.

Are "Gun-Jumping" Prohibitions Still Enforced by the SEC?

Some critics of the "gun-jumping" prohibition have complained that the law is ancient and outdated because today's technology allows for almost instant communication with the public by just about any source who has the capability. It will not be unusual for journalists and investor analysts to talk about an IPO during that company's quiet period, and either through those sources or the company's need to rebuke those sources, information will probably be released to the public that goes beyond the limited information provided in the company's prospectus.

However, recent examples such as Salesforce.com having its IPO indefinitely delayed illustrates that the SEC still takes gun-jumping violations seriously and intends to enforce such laws against the practice. The CEO, Mark Benioff, allowed a New York Times journalist to spend the day interviewing Benioff. The SEC thought this was considered "gun-jumping" because it invited the publication of lengthy article detailing information beyond the company's prospectus. The SEC has threatened Salesforce.com with having to buy back all initial shares they have already released to the public.

What Should I Do if My Company Is Accused of Gun-Jumping in the Midst of Going Public?

You will want to consult a securities law attorney. Your lawyer will be able to tell you what rights and options your company has, as well as potential defenses against the accusations.

Photo of page author Ken LaMance

, LegalMatch Law Library Managing Editor and Attorney at Law

Last Modified: 04-23-2015 07:27 AM PDT

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