In finance, "gun jumping" is the act of publicly offering a security (e.g. stock) for sale before the offering has been approved by the Securities and Exchange Commission*.

Whether an act constitutes gun jumping depends on whether the registration statement, a detailed overview of the securities being offered and the offering company, has been filed with or approved by the SEC. The point of gun jumping is that securities should not be offered before investors have a chance to see the prospectus, the end-user version of the registration statement designed to help investors decide whether to fork over their cash or not.

Under the Securities Act of 1933 (Section 5):

  1. any offer of a security before the registration statement has been filed is gun jumping, and
  2. any written offer made after filing but before approval is gun jumping, unless accompanied by a copy of the preliminary prospectus (known in the business as a "red herring" because of its red warning legend).

"Offer" is defined broadly here, and includes all types of direct offers, marketing, "hyping," and pretty much any other activity that could be construed as attempting to sell a security or butter someone up to buy it.

There are exceptions, though. Certain "offers" of securities have specifically been OK'ed by the securities laws and the SEC, regardless of the status of the registration statement. These include:

  • Tombstone ads. You might have seen these in the Wall Street Journal or The Economist—big ad blocks in large print stating that Company X is going to offer a certain number of shares to the public through Banks Y and Z. A tombstone ad can legally be printed at any time during the approval process. In practice, though, you usually see such ads printed right after the offering is approved by the SEC to publicize its approval and generate interest.
  • Press releases. Press releases may be made concerning the offering at just about any time. These are more likely to come out between filing and approval. They must follow the same content restrictions as tombstone ads, meaning that they include only basic information about the company, banks, and number and type of securities involved.
  • Research. Pretty much every major brokerage firm issues research reports about various companies. If the issuing company is making its initial public offering, it is illegal for brokers to send out research reports before the offering has been approved. More "seasoned" companies, which are already being covered, can be researched more freely, but cannot be "targeted" for research: in other words, brokers can only send out research on such companies as part of broader surveys, like industry overviews or lists of hot-companies-to-watch.
  • Well-known seasoned issuers or "WKSIs"—i.e. huge public companies—don't have to worry about gun-jumping as a general rule.
  • Small private offerings of securities (i.e. selling shares in your company to your dad or the rich guy down the street) are also not subject to these rules (or to most federal securities laws, for that matter).

The penalties for gun jumping may include delays in approving the offering, federal court proceedings brought by the SEC to disgorge profits from gun jumping offers, or—in extreme cases—criminal charges brought by the Department of Justice.


* Yes, this writeup is US-centric. The US actually has the most anal securities regulations on the planet, so if you live in another country, chances are your local regulators won't care as much. (Which is why European phone companies could splash investor-oriented ads all over television before they were offered to the public.)

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