[Federal Register: September 5, 1996 (Volume 61, Number 173)]
[Notices]
[Page 46807-46809]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
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FEDERAL DEPOSIT INSURANCE CORPORATION
Statement of Policy on the Use of Offering Circulars
AGENCY: Federal Deposit Insurance Corporation (FDIC).
ACTION: Revision of Statement of Policy.
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SUMMARY: The FDIC is revising its Statement of Policy Regarding Use of
Offering Circulars in Connection with Public Distribution of Bank
Securities. The revision updates the informational standards for the
public distribution of bank securities by insured state nonmember
banks, clarifies the meaning of certain standards, and provides
references for bank management and counsel for mutual-to-stock
conversions, public distribution of securities and private placements.
The FDIC Board of Directors believes that the statement of policy
enhances public confidence in the banking system by providing for full
disclosure in offering circulars.
EFFECTIVE DATE: September 5, 1996.
FOR FURTHER INFORMATION CONTACT: Lawrence H. Pierce, Section Chief,
(202/898-8902) or Mary S. Frank, Senior Financial Analyst, (202/898-
8903), Division of Supervision; Gerald Gervino, Senior Attorney, (202/
898-3723), Legal Division.
SUPPLEMENTARY INFORMATION:
I. Current Statement
The current statement of policy was adopted by the FDIC's Board of
Directors in July 1979. The policy discusses the antifraud provisions
of the securities laws and contains a brief statement of the
information that should be furnished when a state nonmember bank offers
and sells equity or debt securities in a public offering.
II. Need for Revision
The offer and sale of securities issued by financial institutions
are subject to the antifraud provisions of the federal securities laws.
These antifraud provisions presume certain common disclosure standards
on the banking industry. The standards and needs of the industry have
evolved in the 17 years since the FDIC Board of Directors issued the
initial statement of policy. These revisions represent an update and
clarification of the standards delineated in the initial statement of
policy and are expected to enhance capital formation.
III. Modifications
The primary changes to the original statement of policy pertain to
mutual-to-stock conversions and sales of the bank's securities on bank
premises. The revisions reflect the FDIC's expanded review
responsibility with respect to mutual-to-stock conversions and also the
need to enhance disclosures in response to changes in the securities
markets.
Other areas of change pertain to limitations on advertising
activity, minimum requirements for subscription order forms, and
references to regulations of the Office of Thrift Supervision and the
Securities Exchange Commission in particular circumstances. The
statement of policy no longer refers to the Securities Offering
Disclosure Rules (12 CFR part 16) of the Comptroller of the Currency
because part 16 has been cross-referenced to the regulations of the
Securities and Exchange Commission since April 1995. The list of
essential items of disclosure is also revised.
Additional guidance in the areas of disclosure and advertising,
suitability and sales practices, as well as setting and circumstances
relating to sales activities on the premises of a depository
institution is provided by the ``Interagency Statement on Retail Sales
of Nondeposit Investment Products''. Portions of that statement may be
applicable when a bank sells or distributes securities as part of the
capital formation process.
IV. Approach
The revised statement of policy does not impose a filing
requirement, although the FDIC will continue to review offering
circulars used in connection with mutual-to-stock conversions and
deposit insurance applications. This approach provides flexibility to
small banks and allows the banks to incorporate disclosure material
prepared for other purposes, including state securities requirements,
in offering circulars. The statement of policy allows for informal
consultation with the staff in the Registration and Disclosure Section.
This method of review has proven beneficial to small banks over the
past few years.
V. The Statement of Policy
The text of the statement of policy follows:
[[Page 46808]]
Statement of Policy Regarding Use of Offering Circulars in Connection
With Public Distribution of Bank Securities
This statement of policy concerns the use of offering circulars in
connection with the public distribution of bank securities by insured
state nonmember banks. The FDIC is issuing this statement in view of
its statutory duties relating to capital adequacy, the safety and
soundness of insured banks, and its review responsibilities with
respect to mutual-to-stock conversions of FDIC-regulated financial
institutions. The statement of policy also is intended to protect
insured state nonmember banks against the risk of serious capital loss
or litigation that could result if bank securities are sold in
violation of the antifraud provisions of the federal securities
laws.1
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\1\ The FDIC recognizes the efforts of certain states in
regulating the offering of securities by insured state nonmember
banks and encourages the adoption of regulations and review
procedures at the state level; however, because of a lack of
uniformity among all states, FDIC considers the adoption of this
statement of policy which will apply to all insured state nonmember
banks appropriate.
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The issuance of securities by banks is subject to the antifraud
provisions of the federal securities laws which require full and
adequate disclosure of material facts.2 It is the FDIC's goal to
have banks comply with the antifraud provisions of the federal
securities laws in a manner which meets the needs of investors,
depositors and issuers. It is the responsibility of bank management and
the promoters of a bank in organization to understand these
requirements and utilize an offering circular in appropriate
situations.3
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\2\ Section 17(a) of the Securities Act of 1933 (15 U.S.C.
77q(a)) and rule 10b-5 (17 CFR 240.10b-5) of the Securities Act of
1933 (``SEC'') promulgated under section 10(b) of the Securitites
Exchange Act of 1934 (15 U.S.C. 78j(b)).
\3\ SEC rule 10b-5 (17 CFR 240.10b-5) makes it unlawful in
connection with the offer or sale of a security: * * *
(a) To employ any device, scheme, or artifice to defraud,
(b) To make any untrue statement of a material fact or omit to
state a material fact necessary in order to make the statements
made, in the light of the circumstances under which they were made,
not misleading, or
(c) To engage in any act, practice, or course of business which
operates or would operate as a fraud or deceit upon any person, in
connection with the purchase or sale of any security.
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In view of the FDIC's statutory duty to determine capital adequacy
when passing upon an application for federal deposit insurance, the
FDIC reviews whether public investors have been provided sufficient
disclosure of material facts by an insured state nonmember bank in
organization. The FDIC also reviews any offering circular used by a
bank operating under an administrative order, or used in a mutual-to-
stock conversion as part of the application process.
The FDIC believes that every insured state nonmember bank or bank
in organization publicly offering its securities, including offerings
under preemptive rights, should use an offering circular.
(1) The offering circular should include the following statements
in capital letters printed in boldfaced type:
THESE SECURITIES ARE NOT DEPOSITS. THESE SECURITIES ARE NOT
INSURED BY THE FDIC OR ANY OTHER AGENCY, AND ARE SUBJECT TO
INVESTMENT RISK, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION NOR HAS THE FEDERAL DEPOSIT
INSURANCE CORPORATION PASSED ON THE ADEQUACY OR ACCURACY OF THIS
OFFERING CIRCULAR. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
(2) The offering circular should indicate in capital letters and
boldfaced type, if debt securities are offered:
THESE OBLIGATIONS ARE SUBORDINATE TO THE CLAIMS OF DEPOSITORS
AND OTHER CREDITORS AS MORE FULLY DESCRIBED IN THE OFFERING
CIRCULAR.
(3) The offering circular should identify the offeror and principal
business address; state the title, number, aggregate dollar amount and
per unit price of securities offered; describe the subscription rights
and limitations, risk factors, business of the offeror, use of proceeds
and capital structure, management and principal shareholders,
compensation and business transactions, material features of the
securities offered, dividend policy, the plan of distribution, and
legal or administrative proceedings; provide selected financial data
for each of the last five fiscal years and interim periods, and a
management's discussion and analysis of the results of operation for at
least the past two years and the interim periods; and present
comparative financial statements, footnotes and schedules of the bank.
The financial statements, footnotes and schedules for each fiscal
year and interim period presented should be at least as inclusive as
that required by the annual disclosure statement for insured state
nonmember banks (12 CFR part 350). Banks that have an annual audit of
financial statements by an independent public accountant, which the
FDIC strongly encourages, should include the audited financial
statements in the offering circular. Banks are encouraged to include an
introductory ``plain English'' summary of the essential information
contained in the offering circular, along with a profile of the terms
of the offer and the telephone number of the principal executive office
of the bank.
Banks in organization should disclose the expected relationship
that the institution will have with each promoter, organizer, proposed
director and executive officer, including compensation, business
transactions, and stock option or award plans. A balance sheet and
statement of organizational and pre-operating expenses, a pro forma
capitalization table and a business plan should be provided as of the
latest practicable date for the bank in organization.
(4) The offering circular should be accompanied by a subscription
order form that states the maximum subscription price per share of
capital stock, the maximum and minimum number of shares that may be
purchased pursuant to subscription rights, the time period within which
the subscription rights must be exercised, any withdrawal rights, any
required method of payment, and the escrow arrangements. The
subscription order form should provide specifically designated blank
spaces for dating and signing. The order form should contain an
acknowledgement by the subscriber that he or she received an offering
circular prior to signing.
Sales of securities issued by insured state nonmember banks should
be conducted in a segregated area of the depository institutions'
offices, whenever possible. Offers and sales should be conducted by
authorized personnel, excluding tellers, in places where deposits are
not ordinarily received. An insured depository institution should
obtain a signed and dated certification from the purchaser confirming
that the purchaser has read and understands the disclosures set out in
paragraphs (1) and (2) above. The certification should contain a
separate place where a purchaser should indicate, by initialing or by
comparable method, that the purchaser is aware of the absence of
deposit insurance covering the securities being sold.4
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\4\ Sales of securities on bank premises are also subject to the
guidance contained in the ``Interagency Statement on Retail Sales of
Nondeposit Investment Products'' dated February 15, 1994.
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Any written advertisement, letter, announcement, film, radio, or
television broadcast which refers to a present or proposed public
offering of securities covered by this Statement of Policy
[[Page 46809]]
should contain: (a) A statement that the announcement is neither an
offer to sell nor a solicitation of an offer to buy any of the
securities and that the offer may be made only by an offering circular,
(b) the names and addresses of the bank and the lead underwriter, (c)
the title of the security, the dollar amount and the number of
securities being offered, and the per unit offering price to the
public, (d) instructions for obtaining an offering circular and (e) a
statement that the securities are neither insured nor approved by the
FDIC.
The FDIC uses the Office of Thrift Supervision's conversion
regulations as a frame of reference in reviewing the form and content
of offering circulars used in connection with mutual-to-stock
conversions. Banks utilizing an offering circular in connection with a
mutual-to-stock conversion should consult 12 CFR 563b.102 (Form OC--
Offering Circular).
The disclosure goals of this statement of policy will be met if:
(A) The offer and sale satisfy the information and disclosure
requirements of SEC Regulation A--Conditional Small Issues Exemption
(17 CFR part 230), or Regulation S-B (Small Business Issuers) (17 CFR
part 228), or
(B) The securities are offered and sold in a transaction that
satisfies the requirements of SEC Regulation D (17 CFR 230.501-
230.506), relating to private offers and/or sales to accredited
investors, or
(C) The securities are offered and sold in a transaction that
satisfies the informational requirements of SEC Rule 701(17 CFR
230.701) for certain employee benefit plans, or
(D) The securities are offered and sold in a transaction that
satisfies the information and disclosure requirements of OTS's part
563g--Securities Offerings (12 CFR 563g).
Inasmuch as the statement of policy does not impose the burden of
filing and awaiting regulatory approval, and allows for certain
flexibility, the FDIC believes it will be beneficial to small banks.
Banks or their legal counsel may contact the FDIC's Registration
and Disclosure Section, Division of Supervision, for a copy of
Suggested Form and Content for Offering Circular (Existing Bank) or
Suggested Form and Content for Offering Circular (Bank in
Organization). The address is Registration and Disclosure Section,
Division of Supervision, 550 17th Street, N.W., Washington, D.C. 20429.
(202) 898-8902.
By order of the Board of Directors, dated at Washington, DC,
this 13th day of August, 1996.
Federal Deposit Insurance Corporation.
Jerry L. Langley,
Executive Secretary.
[FR Doc. 96-22622 Filed 9-4-96; 8:45 am]
BILLING CODE 6714-01-P