Rejected No-Action Request Clarifies Required Ownership Evidence

As reported last week by Glyn Holton in the Investor Suffrage News, available through subscription, investors won another round with the SEC’s denial of a no-action letter to News Corp. From that News:

You may recall last spring’s Apache vs. Chevedden lawsuit. It was a classic SLAPP (strategic lawsuit against public participation) suit, with Apache Corp trying to squeeze shareowner activist John Chevedden financially. The crux of the case was Apache trying to reinterpret poorly-written SEC Rule 14a-8(b)(2), which governs how shareowners must document their ownership of a corporation’s shares for the purpose of submitting a shareowner proposal. Based on an amicus curiae brief submitted by the USPX, the judge flatly rejected Apache’s reinterpretation of the rule. But she found a technicality on which to allow Apache to exclude Chevedden’s proposal from their proxy materials for 2010. That narrow decision appears to be based on factually incorrect information, but that hasn’t stopped three corporations—Union Pacific, Devon Energy and News Corp—from trying to piggyback off the flawed ruling. Since the Apache vs. Chevedden decision, all three have submitted no-action requests to the SEC to allow them to exclude proposals by Chevedden (or those he works closely with). The USPX has helped Chevedden draft responses to each. All three requests have been rejected by the SEC. This is fantastic news for shareowners. Attempts to reinterpret Rule 14a-8(b)(2), and thereby make it more difficult to submit shareowner proposals, have been defeated.

The third of those no-action decisions was just released today. It is important because the first two were decided on technicalities. With the News Corp request, there were no technicalities with which to dismiss the request. SEC staff had to decide in favor of News Corp or in favor of Kenneth Steiner based on the merits. It took them two months—longer than any other Rule 14a-8 no-action request so far this year—but they today decided in favor of Steiner (and Chevedden). Furthermore, they have indicated they will release a fill-in-the-blanks template letter for banks or brokers to confirm share ownership in the future. That should finally put an end to efforts to reinterpret Rule 14a-8(b)(2).

We are delighted with the SEC’s denial of News Corp’s request. Since the SEC’s announcement of their refusal to grant a no-action letter on Steiner’s proposal, News Corp revamped their performance pay plans. (see News Corp gets the performance pay bug, The Corporate Library, 8/4/10)  As Holton indicated above, this is the clearest evidence to date that the SEC rejects attempts to reinterpret Rule 14a-8(b)(2) to require shareowners to obtain a letter evidencing beneficial ownership from the “record holder,” which in the case of stocks held in “street name” is Cede & Co., an agent the Depository Trust Corporation, the central clearinghouse.

We look forward to the forthcoming fill-in-the-blanks template letter for banks or brokers within the Staff Legal Bulletin that I expect will come from Meredith Cross, Director, Division of Corporate Finance at the SEC. In fact, we hope to provide the SEC with some advice. Meanwhile, those of you who subscribe to theCorporateCounsel.net can find out more at Corp Fin to Issue Rule 14a-8 Staff Legal Bulletin Before ’11 Season, 8/5/10.