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FIL-80-96 Attachment

[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

Last Updated: March 23, 2024