Investors and analysts frequently refer to a stock prospectus before making a deal. However, a prospectus can often contain thousands of pages of information. Each statement within a prospectus must undergo rigorous verification and scrutiny to ensure it is both accurate and complete. So, who is responsible for ensuring that the content of a prospectus is trustworthy and effective?
The Role of an IPO Lawyer
An IPO lawyer is a legal professional who specializes in matters related to Initial Public Offerings (IPOs). Their primary responsibility is to assist the company in preparing the prospectus. They ensure that all legal issues involved in the prospectus are appropriately addressed and that the company complies with all relevant securities laws and regulatory requirements.
How IPO Lawyers Verify a Prospectus
- Reviewing the Prospectus: IPO lawyers meticulously review the prospectus to ensure it contains all the necessary information about the company’s business, financial status etc.
- Ensuring Legal Compliance: They ensure that all legal issues related to the prospectus, such as corporate governance structure and legal risks, are adequately addressed.
- Communicating with Regulators: IPO lawyers maintain communication with regulators to ensure that the company complies with all securities regulations and regulatory requirements.
- Conducting Legal Due Diligence: They conduct comprehensive legal due diligence to identify any legal issues or risks associated with the company.
Lawyers need to conduct thorough due diligence on the company’s business, financial status, and corporate risks to ensure the accuracy and completeness of the provided information. Lawyers will bear corresponding legal responsibilities if there are any misleading statements or major omissions.
Key Documents Used to Verify the Prospectus
- Audit Report
An audit report provides an independent and objective assessment of the company’s financial information. It includes details about the company’s assets, liabilities, shareholders’ equity, net profit, and cash flow. IPO lawyers scrutinize the audit report to ensure compliance with securities laws and SEC requirements. The financial report also reveals the company’s financial risks and challenges, aiding investors in understanding the company’s financial situation.
Commonly used in the financial status and financial information sections in the prospectus.
- Industry Report
An industry report provides information about the market and competitive environment of the company. It includes details about industry trends, growth rates, competitors, and market shares. IPO lawyers use industry reports to evaluate better the company’s business model, market opportunities, potential risks, market positioning, and competitive advantages. They also verify the reasonability and feasibility of the market opportunities and prospects claimed by the company.
Commonly used in industry analysis and market prospect sections in the prospectus.
- Confirmation of Director
Company directors or senior management provide confirmation of directors to confirm their identity and qualifications. It includes information about personal background, education, and work experience. IPO lawyers ensure that the identities and backgrounds of company directors are accurate, reliable, and comply with legal and securities regulations. The certificate of directors provides crucial information about the company’s corporate governance structure and management capabilities, aiding IPO lawyers in assessing the level of corporate governance and associated risks.
Commonly used in directors and senior management sections in the prospectus.
The Time It Takes to Verify a Prospectus
The traditional verification process involves three main stages, each of which requires significant time and effort:
Preparation phase (about 45 hours)
- Print hardcopy and manually highlight each sentence
- Tag each sentence in the entire document with a reference ID
- Create a spreadsheet documenting reference ID and document requests
Verification phase (about 165 hours)
- Decipher whether each sentence is a statement of fact or an opinion
- Verify each statement with supporting documents or a signed confirmation statement
Organise phase (about 40 hours)
- Certified documents are organized and stored in a secured folder
- Supporting documents are manually cited and recorded in verification notes
With the advancement of technology, AI has become widely used in various industries. In the field of IPO law, the emergence and popularization of AI technology have brought about significant improvements. More companies and law firms are adopting AI technology to enhance efficiency and precision, thereby improving prospectus verification and review accuracy and efficiency.
AI Technology – Prospectus Verification
- Automatic statement boxing-up, reference ID allocation, and verification suggestions
- AI-powered version control and move work to the latest version
- Collaborative tools to assign work and track verification progress in real-time
- Integrated document management features to organize supporting documents
- Multi-lingual support, enterprise cybersecurity measures, and more
Conclusion
AI technology enables the rapid processing of vast amounts of data and the automatic identification and analysis of key information. This reduces the time and cost associated with manual review and verification, helping IPO lawyers better assess the company’s risks and opportunities and improving legal advice. In sum, the emergence of AI technology has revolutionized IPO lawyers’ work by enhancing prospectus verification and review efficiency and accuracy.