Down But Not Out: The SEC Will Rise From The PIPE Ashes

The Securities and Exchange Commission's (SEC) recent prosecution of Securities Act of 1933 (Securities Act) Section 5 cases in PIPE (private equity investment in public equity) transactions hit a brick wall in 2007 and early 2008.

PIPE transactions – a prevalent structure used in financing for smaller public companies – generally involve investments by hedge funds and sophisticated investors in restricted securities of public companies. For many years, the SEC has been scrutinizing these transactions as they believe the structure of certain deals and the trading practices of certain investors in these deals hurt rather than help smaller public companies. The SEC has brought several enforcement cases against traders and hedge funds involved in the PIPE market, alleging violations of the anti-fraud provisions of the federal securities laws and engaging in the sale of unregistered securities in violation of