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When initial public offerings (IPOs) are a hot item in the securities arena, debate of the usefulness of the state's blue sky laws re-emerges.
This year just happens to be one of those times. New public issues in 1986 may outstrip the wild markets of the late 1960s and 1983.
"IPOs are a function of the market. Five or six years ago, there were virtually no IPOs anyplace in the country. Now we've got a ton of them in Michigan," says Hugh Makens, an attorney with Warner, Norcross & Judd in Grand Rapids, who is a leading national authority on blue sky laws.
"As interest rates go down, people begin looking for a place they can earn more interest than at a bank. The last time we had a period this hot was in 1968."
Makens says Warner, Norcross & Judd is presently talking with eight companies about going public.
A record year for IPOs was set in 1983 when 863 companies raised $12.6 billion. Last year, 494 companies raised $8 billion, according to an annual survey by Forbes magazine. In its March 10 issue, Forbes predicted new issues in 1986 would outpace the 1983 record.
The key element of blue sky laws is a merit review. The process is intended to protect the average investor from fraudulent or unusually risky public offerings.
In order to offer securities in a blue sky state, the promoter must register with the state securities bureau. The bureau administrator then evaluates the offering in terms of fairness and risk. In a typical merit review, the state examiner checks to make sure the price of the stock is set at a reasonable price, that the promoter is not being unduly compensated, that insiders are not being sold large amounts of stock at a discounted value, whether or not the owners of the company intend to stay on after the IPO is completed, and the general operating history of the company.
In recent years, blue sky laws have come under fire from promoters and securities attorneys who claim the rules duplicate SEC disclosure laws and cause unnecessary time delays in the registration process.
Illinois, Iowa and Wisconsin have repealed parts of their merit review requirements in recent years. Michigan also...