WHEN APPLE COMPUTER INC. went public in 1980, the state of Massachusetts refused to register the stock, saying that the offering price was too high for the company's book value. More recently, Bridge Communications Inc.'s initial public offering wasn't approved for sale in Texas or Massachusetts, because of "cheap stock." Six officers have options to buy shares for $2 each, compared with the $12 IPO registration price.
These and thousands of other offerings passed muster with the Securities and Exchange Commission, but were denied registration under state "merit regulation." Depending on who is counting, either 25 or 36 states have such rules, which allow regulators to turn down offerings they deem unfair. Richard Latham, Texas securities commissioner, estimates that 10% of the filings he receives don't clear review. While such problems rarely kill offerings, they can cost dearly in legal fees and reputation.
Now merit review is under attack, partly because it penalizes the startups that states are counting on to provide jobs. In 1983, Michigan eased merit regulations for many securities. Illinois, which was so tough that Apple didn't even try to register there, now requires only that companies disclose all facts relevant to an offering.
In Texas, a bellwether state because of its size, wealth, and tough merit standards, a bill to abolish merit regulation for many stocks sailed through the House last spring, but failed to come to a vote in the Senate. The sponsors will try again in the next session.
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