As mentioned yesterday, Corporation Finance (often referred to as "Corp Fin") recently issued a Compliance & Disclosure Interpretation with respect to the disclosure delivery requirements under Rule 701(e). I find myself befuddled by the following statement in the C&DI:
"Once access to the required information has been granted, however, the medium used to communicate the required disclosure should provide the opportunity to retain the information or have ongoing access substantially equivalent to personal retention."
Recall that Rule 701(e) requires that disclosure be made "a reasonable period of time before the date of sale". More specifically, "If the sale involves a stock option or other derivative security, the issuer must deliver disclosure a reasonable period of time before the date of exercise or conversion. For deferred compensation or similar plans, the issuer must deliver disclosure to investors a reasonable period of time before the date the irrevocable election to defer is made."
Requiring disclosure before exercise, conversion or election to defer makes sense if one views the disclosure as import to the decision to exercise, convert, or defer. It makes less sense, if one views the investment decision being made at an earlier time. For example, options often are subject to time vesting. Thus, the decision to remain employed through the vesting date may be viewed as an investment decision.
Returning to the C&DI, it says nothing about how long this "ongoing access" must last. Does it last only through exercise, conversion or deferral? If so, why? Having obtained the underlying security, a grantee might have an interest in accessing the information for purposes of deciding whether to sale. The information will at some point become stale, however, and there is nothing in the C&DI that suggests a duty to update.