In our view, inquiry by an independent qualified professional with particular skill in conducting due diligence is an absolute necessity. Specific qualifications of the independent professional should be articulated, and guidance should be provided as to what would constitute an adequate disclosure review. Rule 176 should be amended to include review by an independent qualified professional as one of the indicia of prudent due diligence. An underwriter's ability to engage in comprehensive due diligence prior to an offering has been weakened in recent years. Underwriters face greater time pressures because advances in technology and communications, widespread institutionalization and globalization of securities markets, and a dramatic rise in the volatility of the securities market have revolutionized the dissemination and retrieval of information about reporting.
More information is available from more sources than ever before.
It is precisely because of these added pressures that, increasingly, underwriters are retaining outside experts to conduct their due diligence. Underwriters customarily meet with the management of the issuer to conduct due diligence. However, the underwriter also has an affirmative duty to verify the accuracy of statements made by management as well as those contained in a registration statement. Failure to conduct adequate due diligence can result in litigation. As a result, underwriters would be under pressure to conduct a more thorough due diligence investigation in less time than is available under the present system.