Kurz v. Holbrook: Record Ownership and the SEC

by J. Robert Brown, for The Race to the Bottom, March 30, 2010.

We did a lengthy discussion of the Chancery Court’s recent opinion in Kurz v. Holbrook.  The decision contains a lengthy discussion of the voting system for street name owners.  One of the interesting asides concerns the interpretation of record ownership at the federal level.  The opinion noted that under federal law, companies must register with the Commission to the extent having “500 or more record holders of a class” of equity securities and that in counting equity securities, “DTC does not count as a single holder of record.” 

Section 12(g) requires companies with 500 shareholders and $10 million (as modified in Rule 12g-1) in assets to register with the Commission.  In counting that number, the statutory language of Section 12(g) refers to equity securities “held of record.”  Held of record in turn is defined in Rule 12g5-1.  The rule contains a number of counting rules (dealing, for example, with shares held in more than one name or by an entity).  The rule also provided that:  

  • Securities identified as held of record by one or more persons as trustees, executors, guardians, custodians or in other fiduciary capacities with respect to a single trust, estate or account shall be included as held of record by one person.

In other words, it is the custodian, not the beneficiaries, who count for purposes of record ownership.  Adopted in 1965, see Exchange Act Release No. 7492 (Jan. 5, 1965), long before the widespread use of depositories, the rule seemed to explicitly count depositories as a single record owner…(continue reading)

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