SEC Comments -- On Mattersight's Form S-3

Mattersight let it be known Friday night that the SEC has requested changes to the resale registration statement it filed in March 2012, to allow two of the institutional investors to sell, into the public markets, up to 2.36 million MATR shares the investors have earlier puchased in Reg. D private placements.

Two thoughts -- first, and primarily -- that free-resale will now be a significant new overhang on the MATR common stock, should the investor start lightening its position, given that at present, as privately-placed shares, their sale is pretty tightly contollled by volume and manner restrictions under applicable SEC rules.

How so? Well, even with a resale registration in effect, MATR only trades about 40,000 shares a day on the NASDAQ. At that rate, even if the newly-registered shares' investor(s) comprised all of the daily volume each day (which would certainly depress pricing), it would take over 60 trading days to clear the overhang.

So, the far more likely reality is that the investor(s) will be lightening positions -- in dribs and drabs -- over much of the next year, to year and a half. And that will almost certainly be a limit on upside movements -- if not a direct downside mover.

Second, i'll offer a rather technical thought: SEC Form S-3, or short form registration, is available only to companies that keep their '34 Act periodic filings current. In that regard, thus far at least, Mattersight has not indicated that the SEC staffers have agreed with Mr. Conway and Ms. Carsen that the "unreasonable hardship and expense" exemption was available under the recent restatement circumstances (see page three of this very helpful Paul Hastings law firm generated memo -- PDF backgrounder).

So -- it could still turn out that the SEC will say dividing six numbers, and reporting the resulting quotients, is not the stuff from which "undue hardship" is reasonably made.

If that occurs, then MATR will need to convert the SEC Form S-3 to an S-1 -- and will incur significant additional expenses -- in that long-form registration process. Chief among these will be the denial of subsequent incorporation by reference.

That would mean amending the registration statement manually, for each 8-K, 10-Q or 10-K -- a painful and cumbersome process. It would also be highly-embarrassing for a company with 12 years of SEC-reporting history. [But I guess not reading "Accounting for Dividends" -- under GAAP -- is also pretty embarrassing.]

In short, Mr. Conway is hoping that the SEC will agree that dividing six numbers makes for very tough sledding.

It should be remembered that S-3 short form registration was created for companies that repeatedly demonstrate their competence in filing accurate and timely SEC reports. That may not describe s company that forgets (for three years!) to charge dividend obligations against continuing operations (loss) earnings per share, under GAAP, and thus materially understates its GAAP losses per share for three years.

As ever -- we shall see. Could be a bit of a bumpy road, from here.