Facebook started what's called a "road show" this week, pitching itself to potential big investors across the country. It's one of the last steps before a company goes public — which Facebook reportedly plans to do next Friday.
But that pitch has to be very carefully calibrated — as you can tell from all the warning language that precedes it on Facebook's road show website.
Publicly, we have heard almost nothing from CEO Mark Zuckerberg, or anyone else who works at the company. That's because of Securities and Exchange Commission regulations that require what's known as a "quiet period."
Once a company files the paperwork to go public, it is not allowed to say anything that could be construed as hyping its stock. It must remain quiet.
Everything investors need to know about a company is supposed to be in a single document called the prospectus, says Don Keller, a lawyer who represents companies going public.
"The idea behind the rules is that the SEC wants you to use the prospectus as the vehicle to convey information to the public in a controlled, disciplined way," Keller says.
It sounds pretty straightforward, but that's not always the case. Just ask Google, which almost had its IPO delayed because of an interview its founders gave to Playboy. Salesforce.com had its offering pushed back because its CEO talked to The New York Times.
In a 60 Minutes interview, Groupon CEO Andrew Mason described his tortured IPO experience, saying that by the end, it felt as if the company had "been hazed."
Mason ran afoul of the SEC for, among other things, writing a memo that ended up being leaked. He said he was merely defending his company against a chorus of negative analysts and reporters, who of course weren't muzzled by a quiet period.
"I'm not going to pretend like it's been fun to sit here and have something that we've poured our hearts into over the last three years be criticized while our mouths are taped shut," Mason said.
Old Rules, Same Reasons
By all accounts, the Facebook IPO has gone much more smoothly. Still, there are many who share Andrew Mason's disdain for the quiet period.
"It's a bit of an anachronism," says Rakesh Agrawal, an analyst at Redesign Mobile. "It goes back to a time when companies had all the power in terms of getting messages out to potential investors."
That time is long gone, but the rules that govern what companies can say have remained pretty much the same since quiet periods were introduced in 1933.
The SEC did clarify the rules back in 2005, saying companies can still advertise during quiet periods and that they're allowed to continue communications that are part of regular business operations.
But analyst Agrawal says that's not the same as leveling the playing field. He says we live in an era when a single tweet can undermine a company's IPO.
"Now with [the] Internet and social media, you have the ability to communicate with lots of players who are commenting on these companies," he says. "It seems only right [that] companies should be allowed to respond to that."
Aaron Alter is a lawyer who has advised dozens of high-tech companies going through IPOs, and his advice is always the same: Be careful what you say.
"The consequences are high and the benefits are low, in my opinion, when it comes to not being very careful during the quiet period," Alter says.
Alter says the SEC's enforcement of the quiet period may only get stricter. Though he concedes the rules aren't perfect, he says they remain very important.
"You're protecting investors," he says. "You are not allowing companies to be out there touting their stock, inducing the public to buy the stock without the benefit of seeing the financials and the risk factors, the discussion of the management team — all those things any reasonable investor would want to know."
The SEC can talk whenever it wants, wherever it wants. But when contacted for this story, the agency opted to stay quiet.