Prospectus
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The Law and Lore of Repackaging
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Prospectus
/prəsˈpɛktəs/ (n.)
A creative writing exercise for the sort of professional writer — a securities lawyer — whose bildungsroman you would avoid like a case of the clap, especially once you’ve read one of her prospectuses.
A prospectus — also known as an “offering circular”, an “offering memorandum” and an “information memorandum” — is long document describing a securities offer.
Originally designed for a purpose now lost to the mists of history (but believed to be an amulet or protective charm of some kind) a prospectus is certainly not meant to be read by anyone, least of all the team of lawyers preparing it. They wrote it. They know what’s in it. As Sweeney Todd’s Baker[1] used to say, “in this game, you don’t eat your own cooking”. A prospectus fulfills its purpose simply by existing.
Securities dealers are nonetheless convinced that a prospectus presents them with risk of huge liability. Much of it accordingly comprises disclaimers, warnings and articulating studied, feigned ignorance. There is a specific legal department employee who is skilled at this — a “red-herring ninja” — who can forge a living in the cool, nourishing foliage of such a document.
If 400 pages of 9 point Times New Roman describing a collateralised debt obligation were not dreary enough — and be assured, readers, it is dreary enough — large swathes of it, concerning such crushingly on-point topics as its non-justiciability in jury trials, will be addressed in BLOCK CAPITALS to RESIDENTS OF NEW HAMPSHIRE, a constituency that appears perpetually in need of being shouted at.
A draft version of a prospectus — sometimes released for pre-marketing purposes — is called a “red herring” not, as you would think, in frank acknowledgment that is an impenetrable tract that will distract a reader from whatever she ought to be doing for an unconscionably long time and without perceptible benefit — though only once — but on account of an angry red disclaimer written down the margin of the cover warning anyone who should pick it up that it is not to be trusted.
Those who fear their investors might not understand the prospectus — or might, but will sue anyway — might consider a big boy letter.