The “Boulder Letter” explained why opting into a state statute limiting a shareholder’s ability to vote all their shares violates the Investment Company Act. SEC Staff recently repealed the Letter. Consistent with other recent actions, this dilutes the rights of shareholders. In conclusion, another democratic-free zone was provided to entrenched managers and boards. If you value shareholder rights, ask the SEC to retract this action.
Boulder Letter Comments
The Staff of the Division of Investment Management of the SEC is posting comments on its withdrawal of the Boulder letter (in which it opined that a closed-end fund violates the Investment Company Act of 1940 by barring a shareholder from voting all of its shares). Some comment letters have been posted. I draw your attention especially to the letters of Phillip Goldstein, Chris Whitman and Geral Hellerman. So far, all oppose the action.
- Chris Whitman, September 9, 2020
- Philip Beadman, August 31, 2020
- Gerald Hellerman, August 26, 2020
- Anton Trapman, August 21, 2020
- Saba Capital, August 14, 2020
- Kyle Gearhart, Raymond James & Associates, July 30, 2020
- Phillip Goldstein, Managing Member, Bulldog Investors, LLC, July 28, 2020
Staff was probably pressured into withdrawing the Boulder letter by Chairman Clayton after he was lobbied heavily by the fund industry. The SEC appears to have been captured by the industry it is supposed to regulate. Entrenched boards and managers are protected, not the investors the SEC is mandated to protect. All interested persons should submit a comment about this shocking move. It can be a letter or just a brief email, such as mine below. Of course, if you reword it a bit, that helps. The more comments, the better.
How to Engage
The staff looks forward to engaging on these important issues and encourages you to communicate through the following address: IMOCC@sec.gov and insert “Control Share Statutes” in the subject line.
Boulder Letter: Suggested Quick Comment
The Investment Company Act says that every share of stock issued by a closed-end fund must have equal voting rights. I read the Boulder letter at https://www.sec.gov/divisions/investment/noaction/2010/bouldertotalreturn111510.htm. It explained why opting into a state control share statute limiting a shareholder’s ability to vote all of his or her shares would violate the Act. I do not understand how the SEC can change its mind and say, without giving any reason, that it is OK for a fund to prevent a shareholder from voting all of his or her shares.
Activists are needed to hold the management of closed-end funds accountable for poor performance and wide discounts. However, activists will be deterred if they cannot vote all of their shares. And the law is supposed to protect investors, not management.
Was Staff pressured by the politically powerful fund management industry to withdraw the Boulder letter? It should have resisted that pressure. Please have the moral courage to do the right thing and reissue the Boulder letter.