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SEC Rule 14b-1(c)

John W. Sellers
Attorney John W. Sellers
SEC Rule 14b-1(c) Team Lead
Former DOJ Trial Attorney
envelope iconContact John

SEC Rule 14b-1(c) provides several exceptions to the requirement that broker-dealers disseminate information about beneficial owners to securities issuers that request it. These exceptions, as well as other provisions within the rest of SEC Rule 14b-1, provide some semblance of privacy for securities holders while still allowing the corporation to communicate with its shareholders.

At Oberheiden P.C., a national securities litigation and SEC compliance law firm, our attorneys help corporations and their shareholders pursue their interests and protect their rights in a variety of ways, including through novel and innovative uses of SEC Rule 14b-1.

A Basic Overview of SEC Rule 14b-1(c)

SEC Rule 14b-1(c) is a part of a regulation promulgated by the United States Securities and Exchange Commission (SEC). Using the powers delegated to it by Congress in the Securities Exchange Act of 1934 (15 U.S.C. § 78a et seq.) as well as the Securities Act of 1933 (15 U.S.C. § 77a et seq.), the SEC imposed Rule 14b-1, which covers how broker-dealers can be required to pass information from issuers to their beneficial owners, and vice versa.

Subsection (b) of the Rule requires broker-dealers to:

  • Respond within 7 business days to the issuer of securities when it requests the following information:
    • The approximate number of clients that the broker-dealer has who are beneficial owners of the issuer’s securities,
    • How many of those clients have objected to disclosing their personal information in order to receive the issuer’s annual report, and
    • The broker-dealer’s designated agent for receiving these communications
  • Forward the following materials from the issuer, within 5 days of their receipt, to the broker-dealer’s customers who are beneficial owners of the issuer:
    • Proxy
    • Proxy soliciting material
    • Information statement
    • Annual report
  • If requested by the issuer, provide the following information about the broker-dealer’s customers who are beneficial owners of the issuer within 5 days, unless the customer has objected to such a disclosure:
    • Name
    • Address
    • Securities positions

SEC Rule 14b-1(c) then provides a handful of exceptions to a broker-dealer’s obligation to disclose information about their customers when asked. These exceptions are if:

  • The beneficial owner holds securities in exempt employee benefit plans,
  • The issuer does not assure that the broker-dealer will be compensated for performing his or her obligations under the Rule,
  • The issuer notifies the broker-dealer that it will send the annual report to the list of non-objecting beneficial owners provided by the broker-dealer, and
  • Multiple security holders share an address.

Put our highly experienced team on your side

Dr. Nick Oberheiden
Dr. Nick Oberheiden

Founder

Attorney-at-Law

Lynette S. Byrd
Lynette S. Byrd

Former DOJ Trial Attorney

Partner

Brian J. Kuester
Brian J. Kuester

Former U.S. Attorney

Amanda Marshall
Amanda Marshall

Former U.S. Attorney

Local Counsel

Joe Brown
Joe Brown

Former U.S. Attorney

Local Counsel

John W. Sellers
John W. Sellers

Former Senior DOJ Trial Attorney

Linda Julin McNamara
Linda Julin McNamara

Federal Appeals Attorney

Aaron L. Wiley
Aaron L. Wiley

Former DOJ attorney

Local Counsel

Roger Bach
Roger Bach

Former Special Agent (DOJ)

Chris Quick
Chris J. Quick

Former Special Agent (FBI & IRS-CI)

Michael S. Koslow
Michael S. Koslow

Former Supervisory Special Agent (DOD-OIG)

Ray Yuen
Ray Yuen

Former Supervisory Special Agent (FBI)

Beneficial Owners Defined

A beneficial owner is a shareholder who, though he or she may not physically have the security instrument or certificate, nevertheless indirectly enjoys the benefits of owning it.

Most people who own shares in a company are beneficial owners, particularly retail investors. When they buy securities, such as stocks or bonds, most people do it through a bank or a broker-dealer. For convenience, safety, and efficiency, that bank or securities professional will hold on to the security instrument. While the broker or bank may have physical and legal possession of the security document, they have it on behalf of their client, who continues to enjoy the benefits of ownership.

In these cases, the bank or brokerage holds the security in “street name” – the broker’s name appears on the bond or stock certificate, but the client enjoys the benefits of owning the security, such as its value and the voting rights that it imparts.

Rule Aims to Streamline Communication Between Companies and Their Shareholders

As stock and bond ownership went mainstream in the latter half of the twentieth century, it became more and more important for issuing corporations to be able to communicate with retail investors who held their securities.

SEC Rule 14b-1 plays a part in facilitating that communication. However, it is also aware of the potential for abuse that this creates. Companies could conceivably use the channel of communication to hassle or overwhelm their shareholders and potentially even stifle activist shareholders by targeting them with incessant communications. By giving beneficial owners the ability to close off direct communications from the companies that they have a stake in, SEC Rule 14b-1 ensures that a shareholder’s privacy is still in their own hands.

For broker-dealers, though, SEC Rule 14b-1 poses a significant burden. By throwing these securities professionals into the role of middlemen between corporations and their shareholders, the Rule imposes what can be a massive administrative task on their brokerage firm. The amount of material that can be made to pass through the firm can be staggering, to say nothing of the accounting requirements that become necessary to track the firm’s clientele.

Frequently Asked Questions About SEC Rule 14b-1 and Oberheiden P.C.

If I Object to the Disclosure of My Personal Information, Will I Receive Materials?

 

Yes, even if you object to the disclosure of your personal information to the issuer of the securities that you own, you will still receive proxy material, information statements, and the annual report. If you do not object to this disclosure of your information, the issuer will have what is necessary to send you this material directly. If you do object, the issuer of the securities can still get you the material. It would just go to your broker-dealer, first, and then get forwarded to you.

Why Would I Want to Object to this Disclosure of My Personal Information?

 

Many investors object to their broker-dealer’s disclosure of their personal information to issuers out of privacy concerns and their personal convenience. Some do not want the issuers to know their personal identities or how much stock they own in the company. Others are wary of corporate solicitations becoming a nuisance.

What is the Default Stance on Objecting to the Disclosure?

 

You have to affirmatively object to your broker-dealer’s disclosure of your personal information. If you do nothing, he or she will divulge your name, address, and holdings to an issuer that requests that information.

You can object to this disclosure at any time by contacting your broker.

Why Should I Choose Oberheiden P.C. for My Legal Needs?

 

Because Oberheiden P.C. has extensively experienced securities litigation and compliance attorneys, and because that is all that we have.

All of the lawyers on staff at Oberheiden P.C. are senior-level attorneys who have at least a decade of experience in the securities field. Many of our lawyers only came to Oberheiden P.C. after long careers in federal law enforcement agencies, including the U.S. Department of Justice (DOJ) and the SEC. With all of that experience behind our lawyers, you can rest assured that we have seen issues similar to your own and have guided clients through them before.

Just as important, though, is the fact that Oberheiden P.C. only employs these senior attorneys. We do not have any junior associates on staff, or even any paralegals or legal secretaries. This means that all of the legal work done on your case is performed by an experienced attorney who knows exactly how important it is and precisely how it should be done. It also means that all of your communications with the firm go directly to a senior lawyer who can make an informed response. This gives you access to the immediate guidance that you need, and also ensures that your concerns are not lost because it has to pass up a long chain of command, as they have to in other firms.

Why Don’t You Call Yourselves the Best Securities Lawyers?

 

Because we prefer to let our prior clients do that sort of talking for us, instead. It means more when it comes from them anyway. Many of them have left outstanding testimonials about the legal services that we have provided for them.


Securities Compliance Attorneys at Oberheiden P.C.

Whether you are a shareholder who wants to pursue your own interests, a corporation seeking information about its stakeholders in order to better position itself, or a broker-dealer or brokerage firm that wants to ensure compliance with SEC Rule 14b-1, the securities professionals and attorneys at Oberheiden P.C. can help.

There are a variety of reasons why beneficial owners want to stay hidden. Your right to maintain your privacy does not have to be bought with other inconveniences or lead to important information about your investments being withheld from you.

Executives at public companies often find information about their shareholders to be extremely useful in determining how to best move the company forward. Requesting this information through SEC Rule 14b-1 can be the best way to gather some of it. The attorneys at Oberheiden P.C. can help guide you through the process and inform you of some of the potential drawbacks that making the request can create.

Securities professionals can also benefit from the legal guidance that Oberheiden P.C. can provide. Our attorneys have extensive experience in bringing regulated professionals and their brokerage houses into compliance with the SEC’s complex rules and regulations, including Rule 14b-1. While onerous, the demands imposed by the Rule are not impossible to meet with the right approach. If done correctly, the legal obligations of Rule 14b-1 can even be satisfied without overly stressing the firm.

Reach out to Oberheiden P.C. by contacting them online or by calling their law office at (888) 680-1745.

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