From: Jim Rivest
Sent: June 24, 2016
Subject: File Number S7-06-16


Dear SEC,

On pages 174-175 you commented and asked the following:

"When Congress enacted Section 12(g) in 1964, most security holders in the United States owned their securities as record holders.  

Should we retain or eliminate Item 201(b)(1)?  Why?  If retained, should we modify the item and if so, how? 

As the vast majority of investors now hold their shares in street name, does disclosure about the number of record holders continue to be important to investors? 

Should we require registrants to disclose the amount of each class of
equity securities held in street name? 

Should we require registrants to disclose the  number of beneficial owners?  If so, how should we define “beneficial owner” for purposes of Item 201(b)(1)? 

How would investors benefit from this additional information?  
What types of investors or audiences are most likely to value the information required by Item 201(b)(1)?"


I think the most important question about a 'security holder' is not being asked. That is, "How should a 'record holder' now be defined?”   The vast majority of shares are now held in 'street name' and in some cases these shareholders are not being treated the same as 'registered shareholders' in the same company.

Here are a couple of recent examples which show this disparity in treatment.  First, some companies I own only send out notice of their annual meeting to their registered shareholders and not to shareholders who hold their shares in street name at their brokers.   Second, in some recent 'going dark' transactions only registered shares were purchased to get below the required 300 shareholder limit and not street-held shares.

Since SarbOx was passed, hundreds of small companies have followed the letter of the law, deregistered and 'gone dark'.  On average, these small companies save several hundred thousand dollars annually in expenses by no longer being required to file with the SEC.  Some of the mid-size companies 'going dark' can save a million dollars annually.

So there are good reasons to shrink the shareholder base to less than 300 "shareholders of record", but 'beneficial owners' should now be included in the 'record holder' class.   In this day and age, it doesn't make sense to exclude beneficial owners from being record holders.  It's an antiquated rule that should be changed. 

If street-held shares do continue to be treated unequally and unfairly after a company deregisters, then there should be restrictions on those now dark companies from going completely 'radio silent' and providing no ongoing financial information to their remaining shareholders.

I invest in deep value small cap companies.  I've owned some for years only to be told when they 'go dark' that the rules regarding transparency would be changed on a going forward basis.  Some companies continue to post their financials quarterly or annually, only to stop doing so after a period of time.   Others never even bother posting any financials from the day after they deregister.  

What is a small investor to do in that situation?   As shareholders, we can beg our company management to provide some transparency, but in many situations the company is unresponsive.   We can send a letter insisting we have rights as shareholders, but the company can still make things very difficult for their outside shareholders.  They can require an onerous and overly restrictive non-disclosure agreement to be signed.  The can also insist that nothing will be mailed and a small window of time will be provided at a venue of their choice to pick up the financial statements of the company.  So, in addition to the inconvenience and expense of travelling in order to get any information, sometimes a lawyer must be retained if the company doesn't wish to comply with even these limited chances to obtain information.  

If a company chooses to no longer provide any financial information to their shareholders, they should 'go private' and not 'go dark’.  A fair price can be paid to all shareholders and, if unfair, shareholders have recourse in perfecting their appraisal rights.  A newly dark company which provides no financial information creates a purgatory for remaining shareholders and as time rolls on, the total lack of communication results in a much lower stock price and a hellish experience.    As shareholders, this is OUR company too and the choices shouldn't be to hang on and lose money or sell and move on.

Shareholders in such companies still have the right to know what's going on in their company.  Many companies are incorporated in Delaware which has a distinct set of rules for shareholders to get information, but companies incorporated in other states have different and often more restrictive or vague rules.

I do understand why small companies want to save on expenses and no longer file with the SEC, but all companies have audited annual financial statements and it would not be difficult for these companies to do one or more of the following:  (i) send those statements to OTC Markets to be publicly posted, (ii) email them to shareholders, (iii) provide a portal for shareholders to access or (iv)  post them publicly on their website.

It's totally unfair that some shareholders have an information advantage.  The insiders know what is going on, while outside shareholders are left in the dark.

Currently my brokers (e.g. Fidelity and CapitalOne) will no longer even let me invest in companies that provide no information.  It doesn't matter that I owned these stocks for years at these firms, I can no longer even add to my position.  So with an information vacuum and fewer buyers, it's no wonder the trend in price is down year after year after they 'go dark'.

The WSJ had an interesting article recently that may result in the SEC redefining 'shareholders of record' if larger companies start pulling the same stunt as smaller companies and restricting or curtailing information flow as discussed above.

"According to S&P Dow Jones Indices, more than one-fifth of the 1,500 largest companies in the U.S. have fewer than 300 official shareholders. Eight companies with market values of at least $1 billion each report having no more than 10 shareholders of record."

So, technically, a large and controversial or beleaguered company could deregister and go dark.  Some may even choose to do what their smaller brethren have done and make it very difficult to get information because after all they no longer file with the SEC.

It was noted that, "Lumber Liquidators Holdings, the hardwood-floor retailer, has 27 million shares outstanding (total market value: $388 million), but only eight so-called shareholders of record."

If insiders owned enough shares and grew tired of bad press or activist activities, they could simply just try to deregister.   It's time to change the rules and count all shareholders the same and as equals.   And for those who have already deregistered, to either provide financial information to their shareholders or go private.

Thank You,
Jim Rivest