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August 04, 2003 at 08:00 PM
WHITE PLAINS, N.Y. (HedgeWorld.com)–Stephen J. Nelson, a lawyer acting on behalf of several hedge fund managers and a broker-dealer, has filed a petition with the Securities and Exchange Commission, asking it to change its interpretation of the 300-shareholder threshold for the public disclosure of financial data, to make it more difficult for issuers to avoid disclosure by deregistering.
“I think you always see a rash of going-private strategies whenever there’s been a bear market. Companies come to look at their shareholders more as a nuisance than as a source of capital,” Mr. Nelson said.
In 1964, Congress amended the Securities Exchange Act of 1934 to bring over-the-counter trading within the scope of the regulatory system that it had created 30 years before with the New York Stock Exchange in mind.
The 1964 law said that issuers that trade over-the-counter would be required to register and to comply with the proxy rules and the insider trading and reporting requirements of the Exchange Act if they exceeded certain minimums of total assets and the number of shareholders of record. The statute, section 12(g), also gave the SEC discretion in defining how to count holders of record.
The following year, accordingly, the SEC adopted rule 12g5-1, which did not require issuers to count all the beneficial owners of stock, only the so-called “street names.” This meant that as the practice spread of holding stock through a broker, the disparity between the number of beneficial holders and the number of holders of record widened.
The petition contended the 1965 rule is obsolete now and ought to be changed. It said that since the start of 2003, 24 issuers have deregistered their securities “under circumstances suggesting manipulation of the capital markets and circumvention of the Exchange Act.”
