Public Offerings and Pre-Filing Publicity

Abstract

case histories of a regulatory effort by the Securities and Exchange Commission began to unfold September, 1958 when the Arvida Corporation, a Florida land development company, decided to go public. The underwriters held a press conference prior to registration of the new securities with the S.E.C. The Commission's reaction was swift. The S.E.C. opined that the underwriters were violation of Section 5(c) of the Securities Act of 1933 which prohibits the use directly or indirectly of interstate commerce or of the mails to offer to sell through the use or medium of any prospectus or otherwise any security, unless a registration statement has been filed as to such security... . But, before examining the Commission's interpretation of this prohibition as applied to Arvida, let us briefly outline this most interesting sequence of events. In 1958, Arthur Vining Davis, former Chairman of the Board of the Aluminum Company of America, and an energetic millionaire at 91, decided to incorporate approximately 100,000 acres of Florida real estate that he had purchased between 1947 and 1958. He decided to sell two and one half million shares of the new company to be named Arvida. To aid this undertaking Mr. Davis enlisted the service of a syndicate of banking firms headed by Dominick & Dominick and Carl M. Loeb, Rhoades & Co. During July, a meeting was held Miami to work out the various aspects of the contemplated public offering. At this meeting it was noted that there was some concern Florida real estate circles as to the ultimate disposition of the Davis Stanley Grant, a partner of Loeb, Rhoades, submitted a proposed press release which included some description of the giant spread of Davis' lands and mentioned the proposed underwriting. This was revised by Mr. Davis' representatives to state that the major portion of his land holdings were to be brought into the Arvida Corporation. Arvida turn would arrange to obtain the capital for development of the No mention was made of a public offering, underwriting, or underwriters. The substance of this release appeared various Florida newspapers. This was July. By September the final arrangements for the financing had been made and it was decided that another press release should be issued. Again, Mr. Grant drafted the text which was approved by Arvida; representatives of Mr. Davis; Dominick & Dominick; and counsel for the proposed underwriters. However, no financial or public relations counsel was consulted except for the purpose of arranging for the distribution of the release New York City. The release, issued by Loeb, Rhoades, stated that Arvida would be provided with $25-$30 million additional capital through a public offering, and that the new company would have assets of more than $100 million reflecting Mr. Davis' investment together with the public's investment. The release referred to both a public offering scheduled within 60 days and to the transfer by Mr. Davis to Arvida of more than 100,000 acres in the area of the Gold Coast. Three Florida counties were named, and references were made to undeveloped lands and to operating properties. Officers of Arvida were anxious to have the release issued promptly, so a press conference was held the offices of Loeb, Rhoades.