SEC Staff Releases Two New C&DIs on the Use of Notices of Exempt Solicitation

August 6, 2018

One of the surprises of the 2018 proxy season was the use of Notices of Exempt Solicitation by shareholders that almost certainly did not meet the $5 million holding threshold that would require filing under Exchange Act Rule 14a-6(g).

Rule 14a-6(g) requires a person who owns more than $5 million of the company’s securities and engages in a solicitation without seeking to collect, or act as, a proxy to file solicitation materials with the SEC.

At AES, shareholder and frequent proponent John Chevedden submitted a shareholder proposal to lower the threshold for shareholders to call special meetings to 10%.  The company included in its proxy statement a management proposal to ratify the existing 25% threshold for shareholders to call special meetings contained in the company’s bylaws.  This allowed the company to seek, and receive, no-action relief from the Securities and Exchange Commission (SEC) on the basis that the management and shareholder proposals conflicted.  Chevedden then filed a “shareholder memo” criticizing management and urging shareholders to vote against the management proposal as a Notice of Exempt Solicitation.  Although shareholders were able to view the memo, as Notices of Exempt Solicitation appear on a company’s EDGAR page on the SEC’s website, the company proposal ultimately passed, receiving approximately 60% shareholder support.

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