The Honorable Arthur Levitt, Jr.
Chairman
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549

Dear Chairman Levitt:

I am writing concerning a matter under consideration by the House-Senate conference committee to resolve the differences between H.R. 3005, the Securities Amendments of 1996, and the Senate Amendment thereto.

Both the House bill and the Senate Amendment contain provisions that are designed to address the problem encountered by some U.S. journalists who claim that they have been excluded by issuers from offshore press conferences and from access to press materials allegedly because of concerns about the application of the U.S. securities laws. I am aware that the SEC has issued several statements in this area. For example, Preliminary Note 7 to Regulation S expressly states:

...Nothing in these rules precludes access by journalists for publications with a general circulation in the United States to offshore press conferences, press releases and meetings with company press spokespersons in which an offshore offering or tender offer is discussed, provided that the information is made available to the foreign and United States press generally and is not intended to induce purchases of securities by persons in the United States or tenders of securities by United States holders in the case of exchange offers.

Nevertheless, we have been informed that this problem persists, and we agree that the issue needs to be resolved.

1. The House bill contains a directed rulemaking provision (section 109) that requires the SEC to adopt rules under the Securities Act of 1933 concerning the status under that Act's registration provisions of foreign press conferences and foreign press releases by persons engaged in the offer and sale of securities. The SEC would be required to adopt these rules within one year of the date of enactment of the legislation. The Committee report (H. Rept. 104-622, at 40) clearly states that: "the Committee intends that journalists disseminating information in the U.S. be given appropriate access to foreign press conferences involving offerings of securities in order to ensure that information is made available in the U.S. and instructs the Commission to adopt a rule that will achieve this goal consistent with the protection of U.S. investors."

We understand that your agency has had this issue under active consideration and that SEC staff have almost completed work on proposed rules. Please advise us of the status of this rulemaking and any imminent plans for Commission action.

2. The Senate Amendment (section 313) addresses this issue in an overly broad manner that raises serious investor protection issues. For purposes of the Securities Act registration requirements, the definition of "offer" would be amended to exclude categorically press conferences held outside of the United States, public meetings with issuer representatives conducted outside of the United States, or press related materials released outside of the United States in which an offshore offering is discussed. This provision would apply without regard to whether journalists from the United States or journalists for publications (including on-line services) with circulation in the United States attend such press conferences or meetings or receive such press related materials. This provision would apply to all issuers (whether domestic or foreign), and would be available for offshore offerings that are also being made in the United States.

The Senate Amendment also would amend section 14 of the Exchange Act to provide that a "foreign issuer" engaged in a tender offer may grant U.S. journalists access to such press contacts and press related materials in connection with the tender offer, without triggering the application of the Williams Act tender offer provisions or becoming subject to any regulations promulgated by the Commission pursuant to Section 14(e) (the Williams Act anti-fraud provision) or 13(e) (the issuer tender offer anti-fraud provision), or otherwise, that relate to tender offers or requests or invitations for tender. For purposes of this section, a "foreign issuer" is defined to include any corporation or other organization (1) that is incorporated or organized under the laws of any foreign country; or (2) the principal place of business of which is located in a foreign country.

Neither the Securities Act nor the Exchange Act exclusion would allow the SEC to impose conditions for the protection of investors or to modify or withdraw the exclusion should abusive or fraudulent conduct thereunder become prevalent.

Please provide us with your analysis of section 313, including how it might be utilized to engage in unlawful conduct as part of a plan or scheme to violate the registration provisions of the Securities Act and/or the Williams Act tender offer provisions and anti-fraud rules. How would this section have to be amended in order to provide appropriate safeguards against fraud and abuse?

3. My concern about the potential for problematic practices under the Senate Amendment is heightened by recent reports of fraud and abuse being conducted under Regulation S. Regulation S contains a general statement providing that the registration requirements of Section 5 of the Securities Act shall be deemed not to apply to offers or sales of securities that occur outside the United States, and whether a transaction occurs outside the United States within the meaning of the regulation's Rule 901 is a determination based on the facts and circumstances of each case. Additionally, the regulation provides two non-exclusive safe harbors, Rules 903 and 904, for extraterritorial offers, sales, and resales of securities. While adopted in April 1990 amid fanfare touting Regulation S as a means to allow U.S. companies to raise capital abroad in a cheaper and more simplified manner (see, e.g., April 19, 1990 Opening Remarks of SEC Chairman Breeden: "These rules will have a profound and beneficial effect upon the ability of issuers to raise capital in the context of today's global marketplace, and will enhance the competitiveness and efficiency of our domestic markets. ..."), a number of abusive practices have developed, mostly it seems in the bottom tier of the regulation's issuer safe harbor, involving unregistered sales of equity securities of domestic reporting companies purportedly in reliance on Regulation S. Press reports indicate that American investors are being harmed and that a number of Regulation S enforcement actions are being pursued by the SEC. See, e.g., "Easy Money," Barron's cover story (April 29, 1996) at 31; "Florida Executive Is Convicted of Overseas Securities Fraud," New York Times (May 9, 1996); "First-Time Loser: Executive Convicted of Fraud in Reg S Case," Barron's (May 13, 1996); and "Storm Brewing Offshore?" Barron's (September 16, 1996).

Please advise us what steps, if any, you have taken to amend Regulation S to limit its vulnerability to abuse while preserving its benefits. If you have taken no action, please provide your rationale for not addressing these problems.

Thank you for your cooperation and attention to this request.

Sincerely,

JOHN D. DINGELL
RANKING MEMBER

Enclosures

cc: The Honorable Thomas J. Bliley, Jr.
The Honorable Jack Fields
The Honorable Edward J. Markey

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