Free Writing Prospectus

After Larkfield Corp files its registration statement, the lead underwriter wants to circulate a two-page summary sheet highlighting the company's growth in three end markets. This document is a FREE WRITING PROSPECTUS. Which statement about it is correct?

1. A.It replaces the statutory prospectus and eliminates the obligation to deliver one.Wrong. It supplements the statutory prospectus. The prospectus obligation is unaffected.
2. B.It may contain information that conflicts with the registration statement, since it is a separate document.Wrong. A free writing prospectus may add to but may never conflict with the information in the registration statement.
3. C.It may be used only after the registration statement has become effective.Wrong. Its usefulness is precisely that it is available during the cooling-off period, once the registration statement is filed.
4. D.It may be used after the registration statement is FILED, generally must be preceded or accompanied by the preliminary prospectus for a non-reporting issuer, and must generally be filed with the SEC.Correct. Those three conditions - timing, accompaniment and filing - define how a free writing prospectus may be used.

Why: A free writing prospectus is a written offer that may be used AFTER the registration statement is filed, giving underwriters flexibility to communicate beyond the four corners of the statutory prospectus. Three constraints matter. Its content may not conflict with the information in the registration statement. For an issuer that is not already a reporting company, it generally must be preceded or accompanied by the most recent preliminary prospectus. And it must generally be filed with the SEC. Crucially, it supplements the statutory prospectus - it never replaces it.

A firm prepares a written sales piece about a registered offering that is distributed separately from the statutory prospectus, intended to qualify as a free writing prospectus. The document is distributed to prospective investors without the legend required for a free writing prospectus and without being filed where the applicable rules require filing. A principal reviewing this discovers the omissions. What is the concern?

1. A.There is no concern, since the firm's intent that the document serve as a free writing prospectus is what determines its treatment.Wrong. Intent alone doesn't satisfy the actual conditions required for free writing prospectus treatment.
2. B.The document does not satisfy the conditions for free writing prospectus treatment without the required legend and any applicable filing.Correct. The required legend and any applicable filing are necessary conditions for free writing prospectus treatment.
3. C.The concern only arises if the document was distributed to retail rather than institutional investors.Wrong. The legend and filing conditions apply regardless of whether recipients are retail or institutional.
4. D.The concern is resolved as long as the statutory prospectus was delivered to the same investors at some other point.Wrong. Separate delivery of the statutory prospectus doesn't cure the free writing prospectus document's own missing legend and filing.

Why: A free writing prospectus is subject to specific conditions, including a required legend directing recipients to the statutory prospectus and, in many circumstances, a filing requirement; distributing the document without satisfying these conditions means it does not qualify for free writing prospectus treatment as intended.

During the waiting period after a registration statement is filed but before it becomes effective, a representative sends a written summary of the offering's key selling points directly to several prospective customers, believing that because oral solicitations are permitted during this period, a brief written summary is equally acceptable. A principal reviewing this is asked whether the reasoning is correct. What should she explain?

1. A.The reasoning is correct, since a brief written summary is functionally equivalent to a permitted oral communication.Wrong. Written communications are treated differently from oral ones during the waiting period, regardless of brevity.
2. B.The reasoning is correct as long as the written summary does not include a specific offering price.Wrong. Omitting the price doesn't bring an otherwise non-permitted written offer within the permitted forms.
3. C.The reasoning is incorrect; written offers during the waiting period are generally restricted to the statutory prospectus or a compliant free writing prospectus, not any brief written summary.Correct. Written offers during the waiting period are restricted to specific permitted forms.
4. D.The reasoning is correct only if the prospective customers receiving the summary are existing firm customers.Wrong. Whether recipients are existing customers doesn't change the restriction on written offers during the waiting period.

Why: During the waiting period, oral offers are generally permitted, but written offers are generally restricted to the statutory prospectus or a compliant free writing prospectus; a representative's own written summary of selling points, prepared outside those permitted forms, is not equivalent to a permitted oral communication simply because it is brief.