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Securities Act of 1933, 15 U.S.C.S. § 77s(a), known as S.E.C. Rule 175, provides in part that (a) a statement within the coverage of paragraph (b) which is made by or on behalf of an issuer shall be deemed not to be a fraudulent statement (as defined in paragraph (d) of this section), unless it is shown that such statement was made or reaffirmed without a reasonable basis or was disclosed other than in good faith. (b) This rule applies to the following statements: (1) a forward-looking statement (as defined in paragraph (c) of this section) made in a document filed with the Securities and Exchange Commission (c) For the purpose of this rule the term forward-looking statement shall mean and shall be limited to: (1) A statement containing a projection of revenues, income (loss), earnings (loss) per share, capital expenditures, dividends, capital structure or other financial items.
Registration Form S-3 under the Securities Act of 1933 is reserved for firms with a substantial following among analysts and professional investors. The Securities and Exchange Commission believes that markets correctly value the securities of well-followed firms, so that new sales may rely on information that has been digested and expressed in the security's price. Securities Act Release No. 6383, 47 Fed. Reg. 11380 (1982). Registration on Form S-3 principally entails incorporation by reference of the firm's other filings, such as its comprehensive annual Form 10-K and its quarterly supplements. Firms eligible to use Form S-3 also may register equity securities "for the shelf" under Rule 415(a)(1)(x), 17 C.F.R. § 230.415(a)(1)(x). Shelf registration allows the firm to hold stock for deferred sale. Information in the registration statement will be dated by the time of sale, but again the SEC believes that the market price of large firms accurately reflects current information despite the gap between registration and selling dates. Securities Act Release No. 6499, 48 Fed. Reg. 52889 (1983), accompanying the permanent adoption of Rule 415.
Commonwealth Edison Company, an electric utility in Illinois, is eligible to register its securities on Form S-3. In September 1983 the firm put three million shares of common stock on the shelf, using Rule 415. The succinct registration statement incorporated 176 pages of other filings, as Form S-3 permits. Commonwealth Edison sold the shares to the public on December 5, 1983, for the market price of $ 27.625. Stanley C. Wielgos bought 500 of these shares. Subsequently, Wielgos sued Commonwealth Edison for failing to disclose in its investment disclosure material that it had yet to receive a license for its nuclear plant. When the plant was denied an operating license, its stock dropped drastically; although it later rebounded, Wielgos commenced an action against Commonwealth Edison. The lower court held for Commonwealth Edison, stating that it had complied with the statutory requirements.
Was Commonwealth Edison liable to Wielgos for its failure to sufficiently disclose information regarding its stock pursuant to the Securities Act of 1933, 15 U.S.C.S. § 77 et seq.?
Upon examining the merits, the court affirmed and held that Commonwealth Edison revealed all that was required in the various forms. There was no guarantee of future possibilities in the prospectus, and those in Commonwealth Edison’s field would have understood the nature of the statements made in the documents and would not have been misled. Furthermore, the statutory requirements for disclosure documents were met, as all that was required was a brief description of the financial situation of Commonwealth Edison.