how a red herring works
a red herring prospectus may refer to the first prospectus filed with the sec as well as a variety of subsequent drafts created prior to obtaining approval for public release to be considered eligible for release the sec must thoroughly review a red herring prospectus to ensure the information contained therein does not include any intentional or incidental falsehoods or statements that are in violation of any laws or regulations the sec may also note any failure to disclose required information the term red herring is derived from the bold disclaimer in red on the cover page of the preliminary prospectus the disclaimer states that a registration statement relating to the securities being offered has been filed with the sec but has not yet become effective that is the information contained in the prospectus is incomplete and may be changed thus the securities may not be sold and offers to buy may not be accepted before the registration statement becomes effective the red herring does not state a price or issue size you might look at it as the case of a drug having good effectiveness data submitted to the fda for approval but that has not received the fda approval yet but in this case no approval is granted only effective registration once the registration statement becomes effective the company disseminates a final prospectus that contains the final ipo price and issue size expressions of interest then convert to orders for the issue at the buyer s option the minimum period between a registration statement filing and its effective date is 15 days the sec does not approve the securities but simply ensures that all relevant information is disclosed in the registration statement a red herring is a preliminary document filed with the sec that notes a security offering has been filed but is not yet effective benefits of a red herringa red herring prospectus can function as a source of information regarding a potential offering that is currently being crafted by a particular company versions of the prospectus that have not been fully reviewed by the sec may present a company too favorably this view may be adjusted after the sec has requested revisions before final approval the red herring prospectus contains substantial information on the company as well as information regarding the intended use of proceeds from the offering market potential for its product or service financial statements details regarding pertinent management personnel and current major shareholders pending litigation and other pertinent details example of a red herringfacebook inc meta now meta filed a red herring which was essentially a form s 1 with a disclosure the red bold disclaimer on facebook s filing on feb 1 2012 read 