Apache v Chevedden: SEC Rules Don't Reflect Reality

I was delighted to see Broc Romanek coverage of the controversy surrounding Apache v Chevedden, although he did so in a members only area of theCorporateCounsel.net. I hope the case gets a lot of attention.

Yesterday, I was discussing a table I am working on that shows some of the rights denied to street name shareowners that are readily available to registered shareowners. Glyn Holton, Executive Director of the United State Proxy Exchange, pointed out something.  It is obvious those who wrote the regulations don’t know how the system works… or perhaps the rules haven’t been changed since the great immobilization, when almost all the shares were turned over to Cede & Co. and we started trading “security entitlements.”

Rule 14a-8 (b)(2)(i) says that “If you are the registered holder of your securities, which means that your name appears in the company’s records as a shareholder, the company can verify your eligibility on its own. Otherwise submit to the company a written statement from the ‘record’ holder of your securities (usually a broker or bank) verifying that, at the time you submitted your proposal, you continuously held the securities for at least one year.”

Of course, that is exactly what Chevedden did. He followed the rules and got a letter from his broker, Ram Trust. When Apache insisted that Ram Trust didn’t show on their records, he went another level up. However, Apache’s gotcha moment may have been in recognizing that the SEC rules are incorrect, since the rules assume that brokers and banks are “usually” record holders. They are not. Brokers and banks  also largely hold “security entitlements.” Cede & Co. holds the actual immobilized registered securities.

Please pull up the simple table I have begun constructing of  known instances where Street Name shareowners are being denied rights readily available to registered shareowners. (SECRuleStName2) Do you know of other similar situations? Please share your information by e-mailing James McRitchie at [email protected]

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