More on Reading Corp Fin's No-Action "Tea Leaves"
I received quite a bit of member feedback on my recent blog regarding how Corp Fin has a challenging job analyzing the circumstances of each shareholder proposal before making an exclusion/inclusion determination. Some of the feedback was frustration with the way that the Staff sometimes splits hairs. Here is an example of one member's frustration:
I liked your note about how companies, in trying to interpret the SEC's no-action responses, can misinterpret the tea leaves. I have heard from some in-house counsel about a special meeting proposal that John Chevedden has submitted to almost two dozen companies. He has two versions (copied below), which differ only slightly in the wording - as noted by the bolded and underlined language:
1. RESOLVED, Shareowners ask our board to take the steps necessary to amend our bylaws and each appropriate governing document to give holders of 10% of our outstanding common stock (or the lowest percentage allowed by law above 10%) the power to call special shareowner meetings. This includes that such bylaw and/or charter text will not have any exception or exclusion conditions (to the fullest extent permitted by state law) that apply only to shareowners but not to management and/or the board.
2. RESOLVED, Shareowners ask our board to take the steps necessary to amend our bylaws and each appropriate governing document to give holders of 10% of our outstanding common stock (or the lowest percentage allowed by law above 10%) the power to call special shareowner meetings. This includes that such bylaw and/or charter text will not have any exception or exclusion conditions (to the fullest extent permitted by state law) that apply only to shareowners and meanwhile not apply to management and/or the board.
In fact, in three instances, John submitted both versions to the same company. In no-action responses to Bristol-Myers, Dow and Wyeth, the SEC Staff allowed exclusion of the "and meanwhile not" version under 14a-8(i)(3). On the other hand, the Staff inexplicably did not allow exclusion of the "but not to" version of the proposal (and rejected arguments made under (i)(2), (i)(3), and (i)(6)).
In each of the cases, it appears that the Staff's determination hinged on whether the proposal contained the "and meanwhile not" wording or the "but not to" wording. It certainly is not clear why the result would turn on that wording. None of the companies made arguments that referred to that wording - and to my eyes, they mean the same thing. It seems that you make your arguments to the SEC Staff, they ruminate on your letters in silence for a few weeks, and their unexplained answer mysteriously appears on their website. I'm not happy.
Personally, my ten cents is that during those weeks of silence, the Corp Fin Staff is in fact researching precedent and often going through a healthy internal debate on where to draw the line. It is understandable that the line drawn often is not apparent to those on the outside since the Staff's response letters don't explain the rationale for the Staff's decision - and we are not privy to the internal debate. And I note that the Staff simply doesn't have the resources to add the rationale to their responses - so that is not the answer unless Congress ponies up more funding for the agency.
Fake SEC Filings: I Felt the Love
A while back, I asked whether anyone remembered a fake filing from a few years back. In response, a horde responded - reminding me of the fake Form F-1 filed by Apollo Publication Corporation in June 2005. I was embarrassed because I had blogged about that filing myself back then - not once, but twice! Clearly, I spaced when I did my homework.
Some interesting anecdotes about the Apollo fake filing:
- It was a Form F-1, not a Form S-1 or SB-2
- The directors of the alleged company included President Bush, Alan Greenspan, Jimmy Carter, Fidel Castro and a cast of thousands.
- The SEC issued a stop order in September '05 (here is an article about that).
An Even Better Fake Filing: Vietnam War Style
One long-time member sent me this prospectus to allow investors to buy stock in the Vietnam War. I am told this was a big hit circa 1970. It is one of the true classics, particularly for those who were in the military during the Vietnam-era. Almost every sentence has a gem in it. Just check out the subtitle: "This offering involves a high degree of risk." Ain't that the truth...
- Broc Romanek