The SEC just published a cheat code for small-cap dilution
Signal82 min read·Just now--
CFI 116.26 dropped march 19.
buried in the legalese is a loophole that lets small companies lock in oversized ATM selling capacity
even if they shrink back down.
Here’s how the exploit works:
when a company’s public float crosses $75M, even briefly, their shelf registration automatically upgrades. no new filing needed. just math on a good day.
that brief window? it’s everything.
because any ATM they set up during that window gets grandfathered.
Whats the play?
so the play is: float touches $75M on a random tuesday. company rushes to file a new ATM program or expand an existing one.
float drops back to $60M the next week. doesn’t matter.
that ATM is protected. they can keep selling the full registered amount.
the SEC literally confirmed this.
It gets worse.
McGuireWoods published a worked example on march 31 showing the prospectus supplement can be filed AFTER the float drops back below $75M.
as long as it hits before the next 10-K filing, it counts.
so companies don’t even need to move fast. they need to move before their annual report.
https://www.jdsupra.com/legalnews/atm-offerings-and-baby-shelf-6122659/
The real kicker:
Dorsey confirmed with SEC staff that grandfathered ATM sales don’t count against baby shelf capacity.
read that again.
the company gets TWO separate pools of selling capacity. the grandfathered ATM. plus whatever baby shelf limits allow on top.
infinite mint energy.
One critical catch most people will miss:
ATMs originally set up under baby shelf rules (I.B.6) do NOT get grandfathered. only new programs created during the graduation window qualify.
so if a company already had a baby shelf ATM and didn’t set up a fresh one while their float was above $75M? they missed it. no second chances.
Final Thoughts
every IR team at a sub-$100M company should have a playbook for this. the moment float crosses $75M, file the ATM. don’t wait. don’t committee it. file.
because the float will drop back. it always does. but the ATM stays.
SEC CFI 116.26:
