Overview of the SEC’s Comment Letter Process

What is the Purpose of the SEC Comment Letter Process?

The goal of the SEC’s Division of Corporation Finance is to ensure that investors are provided with material information to make informed investment decisions.  One method the SEC uses to achieve this goal is to issue SEC Comment Letters when a company’s disclosures or financials in SEC filings need correction or require further explanation.

Through the SEC’s filing review process, SEC staff monitors and selectively reviews company filings posted under the Securities Act of 1933 and Securities Exchange Act of 1934 in order to “enhance compliance with disclosure and accounting requirements.”

The SEC focuses on disclosures that appear to be inconsistent with SEC rules or recognized accounting standards, or those which appear “to be materially deficient in their rationale or in clarity.”

What is an SEC Comment Letter?

SEC Comment Letters follow a consistent format, using numbered paragraphs that quote the specific language in an S-1 or other SEC filing which needs clarification.  While a S-1 Registration Statement is being reviewed, these SEC Comment Letters are not available to the public.  After an S-1 is declared Effective, all SEC Comment Letters become visible on SEC.gov and are marked UPLOAD.

How Does a Company Respond to an SEC Comment Letter?

A company’s securities attorney then helps the company respond in the same format, listing each comment and reply by number, in a question and answer (“Q&A”) fashion, so that each numbered paragraph is addressed in order.

After an S-1 Registration Statement becomes Effective, these response letters from the company or its securities counsel are also visible on the SEC’s EDGAR system under CORRESP meaning “correspondence.”  At the same time a company responds to SEC Comments, it also amends its S-1 or other SEC filing using the guidance provided by the SEC Comments, and those amendments are likewise posted to EDGAR.

When Does the SEC Issue Comment Letters?

After an S-1 Registration Statement is filed, initial SEC Comments are issued within Thirty (30) Days and often in as few as Two (2) Weeks.  Depending on the nature of the S-1, including the company’s business model and the complexity of its financials, there can be several rounds of SEC Comments, and company responses, which help an Issuer to refine disclosures and explain financials.

The SEC Comment Letter process is expected when a company files an Initial Public Offering (“IPO”) in an S-1 to first sell securities to the public.   There is nothing inherently bad about receiving an SEC Comment Letter.  An experienced securities compliance attorney can help companies use SEC Comments as guidance to make their SEC filings more transparent and easier to understand.

In addition to the expected SEC Comments to an S-1 filing or to any other Registration Statement, the Division of Corporation Finance can technically also issue an SEC Comment Letter for any public company filing an 8-K, 10-Q or 10-K report on SEC.gov if there are questions.

Securities Attorney  for Responding to SEC Comments

Securities lawyer Matt Stout represents OTC Bulletin Board and OTC Markets companies in responding to SEC Comments on S-1 Registration Statements and any Securities Act or 34 Act filings.  Companies seeking guidance on going public by filing an IPO via S-1, or those in receipt of an SEC Comment Letter can contact Matheau J. W. Stout, Esq. for a no cost consultation at (410) 429-7076 or mstout@otclawyers.com.