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Simple English definitions for legal terms
gun jumping
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A quick definition of gun jumping:
Gun jumping is when a company does things that are not allowed while waiting for permission to do something important, like selling stocks or merging with another company. This is against the law and can get the company in trouble. In the stock market, gun jumping means the company can't talk about selling stocks before they get permission. In a merger, gun jumping means the companies can't start working together before they get permission.A more thorough explanation:
Gun jumping refers to illegal activities that a company engages in while waiting for regulatory approval for a transaction. This term is used in two contexts: securities regulation and anti-trust regulation.
In securities regulation, gun jumping refers to actions and communications that are prohibited by Section 5 of the Securities Act and Securities and Exchange Commission (SEC) regulations. The IPO process is divided into three timeframes: pre-filing, waiting, and post-effective periods.
- Pre-filing period: Before filing their registration statement, the issuer is in the pre-filing period. During this time, the issuer is not allowed to make any communications that may affect the market for the sale of the securities.
- Waiting period: Once the issuer files the S-1, they are in the waiting period. During this time, the issuer and underwriter begin to gauge market interest, and the SEC reviews the registration statement. The issuer is allowed to make offers to sell their security under certain conditions.
- Post-effective period: Once the SEC approves the issuer’s S-1, they are in the post-effective stage and may sell their security without restriction.
In anti-trust regulation, gun jumping refers to actions that merging companies may take before closing to further the integration of their operations. The federal government regulates gun jumping activities in Section 1 of the Sherman Act and Section 7A of the Hart-Scott-Rodino Act.
An example of gun jumping would be if two companies that are merging collude on product prices before the merger is finalized. This would be illegal because it would restrain free trade.
Both examples illustrate how gun jumping can be harmful and illegal. In securities regulation, gun jumping can affect the market for the sale of securities, while in anti-trust regulation, it can restrain free trade. Companies must wait for regulatory approval before engaging in any activities related to a transaction to avoid gun jumping.