Order Granting an Application of BF Enterprises, Inc. Under the Securities Exchange Act of 1934, 15148-15151 [2012-6067]
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Company disposes of all of its interests
in Ivy Hill.
2. The Board will review at least
annually the investment management
business of the Company and Ivy Hill
(including a review of transactions
between the Company and any company
controlled by the Company, on the one
hand, and Ivy Hill and any company
controlled by Ivy Hill, on the other
hand) in order to determine whether the
benefits derived by the Company
warrant the continuation of the
ownership by the Company of Ivy Hill
and, if appropriate, will approve (by at
least a majority of the Independent
Directors) at least annually, such
continuation.
3. Except to the extent permitted
pursuant to exemptive relief from the
Commission, neither Ivy Hill (including
members of its investment committee
with respect to Covered Information (as
defined below) received in their
capacities as such) nor any persons
controlled by Ivy Hill (‘‘Information
Providers’’) will directly or indirectly
provide Covered Information to ACM or
any person affiliated with ACM (other
than the Company and persons
controlled by the Company and as
necessary to be provided to ACM and
the Administrator to provide advisory
and administrative services to the
Company and Ivy Hill).
Covered Information means all
information except information that:
(i) Is generally available to the public;
(ii) Is of the nature that Information
Providers share with unaffiliated market
participants at no cost and is not
proprietary to the Information
Providers;
(iii) Information Providers have
obtained from unaffiliated third parties,
including but not limited to general
market opinions and analyses, analyst
reports and diligence reports, and that
such third parties generally make
available to others, including market
participants in the ordinary course, at
no cost; or
(iv) Information Providers have
obtained from, or are providing on
behalf of, borrowers or potential
borrowers or their advisors, and that
such borrowers or advisors generally
make available to unaffiliated market
participants at no cost upon request.
4. None of the Company, Ivy Hill or
any entity controlled by Ivy Hill, will
enter into any Covered Transaction, as
defined below, unless a majority of the
Independent Directors who have no
financial interest in such Covered
Transaction has approved it. A
‘‘Covered Transaction’’ is any
transaction involving the Company, Ivy
Hill or any entity controlled by Ivy Hill
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other than the Funds, on the one hand,
and any Fund in which ACM, any
person affiliated with ACM (other than
the Company or any entity controlled by
the Company), any of their clients, or
the Administrator, is invested, on the
other hand, where such transaction
would violate section 57(a) of the Act
but for rule 57b–1 under the Act.
For the Commission, by the Division of
Investment Management, under delegated
authority.
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2012–6190 Filed 3–13–12; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–66541; File No. 81–937]
Order Granting an Application of BF
Enterprises, Inc. Under the Securities
Exchange Act of 1934
March 8, 2012.
I
BF Enterprises, Inc. (‘‘BF Enterprises’’
or the ‘‘company’’) has filed an
application under Section 12(h) of the
Securities Exchange Act of 1934 (the
‘‘Exchange Act’’) 1 for a Commission
order exempting the company from the
requirement to register its common
stock under Section 12(g) of the
Exchange Act.2 Section 12(h) grants the
Commission the authority to exempt by
order, upon application of an interested
person and after notice and opportunity
for a hearing, any issuer from Section
12(g) ‘‘if the Commission finds, by
reason of the number of public
investors, amount of trading interest in
the securities, the nature and extent of
the activities of the issuer, income or
assets of the issuer, or otherwise, that
such action is not inconsistent with the
public interest or the protection of
investors.’’
In its application, BF Enterprises
states that it ‘‘was a reporting company
under the Exchange Act until 2005 and
terminated its Exchange Act registration
pursuant to a Form 15 filed with the
Commission on August 30, 2005 in
connection with a reverse/forward stock
split transaction,’’ which the company’s
shareholders ‘‘approved * * * on July
21, 2005 based upon a Schedule 13E–3
filed with the Commission on March 31,
2005 and as subsequently amended by
the Company.’’ According to the
application, a shareholder commenced
litigation against the company in the
1 15
2 15
PO 00000
U.S.C. 78l(h).
U.S.C. 78l(g).
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Delaware Chancery Court in 2010 that
ultimately resulted in that shareholder
transferring its shares of the company’s
common stock to 500 identical trusts
before December 31, 2010, the last day
of the company’s fiscal year.
Under Section 12(g) of the Exchange
Act and the Commission’s rules
thereunder, an issuer is required to
register a class of its equity securities if,
at the end of the issuer’s fiscal year, the
securities are ‘‘held of record’’ 3 by 500
or more persons and the issuer has total
assets exceeding $10 million.4
According to the application, BF
Enterprises had total assets of $13.3
million as of December 31, 2010. In
addition, each of the 500 trust entities
was identified as an owner of common
stock on the records of security holders
maintained by or on behalf of BF
Enterprises. However, BF Enterprises
contends that it should not be required
to register its common stock under
Section 12(g) and is seeking an
exemptive order to that effect.
Specifically, BF Enterprises asserts that
exemptive relief would be consistent
with the standards articulated in
Section 12(h) because: (1) BF
Enterprises has fewer than 85 total
beneficial owners of its common stock,
one of which has expressly stated that
its shares are held indirectly through
500 trust entities formed solely for the
purpose of attempting to cause the
company to register its common stock
under Section 12(g) (the ‘‘BFE Trusts’’);
(2) as of December 31, 2010, BF
Enterprises had total assets of
approximately $13.3 million and 2010
annual net income of approximately
$103,000; (3) BF Enterprises has a total
of seven employees and its primary
business comprises two parcels of real
estate; and (4) there is no trading
activity in, and an absence of any
regular market for, BF Enterprises’
common stock.
On May 12, 2011, the Commission
issued a notice of the filing of the
application to give any interested
person an opportunity to ‘‘submit to the
Commission in writing its views on any
substantial facts bearing on the
3 17 CFR 240.12g5–1. Exchange Act Rule 12g–5
states that: ‘‘For purposes of determining whether
an issuer is subject to the provisions of sections
12(g) and 15(d) of the Act, securities shall be
deemed to be ‘held of record’ by each person who
is identified as the owner of such securities on
records of security holders maintained by or on
behalf of the issuer,’’ which is subject to certain
conditions set forth in Rule 12g–5.
4 15 U.S.C. 78l(g)(1) and 17 CFR 240.12g–1. When
Section 12(g) was enacted, the asset threshold was
set at $1 million. The asset threshold has been
increased on several occasions, most recently to $10
million in 1996. See Relief From Reporting by Small
Issuers, Release No. 34–37157 (May 1, 1996) [61 FR
21353].
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application or the desirability of a
hearing thereon.’’ 5 The Commission
received nine comment letters on the
application,6 some of which were from
shareholders of BF Enterprises and all of
which opposed the application.
Commentators contended that the
Commission should deny the
application because the company’s
shareholders have been harmed by the
company’s decision to cease filing
reports under the Exchange Act. Among
other things, the commentators raised
concerns about the company’s lack of
transparency 7 and the detrimental effect
of that lack of transparency on security
holders, particularly in terms of
liquidity 8 and accountability of
management.9 Specifically, some
commentators claimed that the
company’s reverse/forward stock split
transaction was unfair to shareholders
by leaving them with few or no
alternatives to achieving fair value for
their investment, particularly when
there is a concentration of share
ownership in management.10 In the
view of one of these commentators, it
would have been fairer to shareholders
if the company had chosen to go
private—e.g., through a management
buyout or sale to a third party—rather
than ‘‘go dark.’’ 11 Commentators also
expressed concern that the lack of
publicly available information about the
company may have resulted in the
company repurchasing its common
stock from the public at prices lower
than those that would have been
available in a more informed and liquid
market.12 Others expressed concern
about a perceived trend in companies
‘‘going dark’’ and the negative impact
this trend has on the capital markets
generally.13
Some commentators urged the
Commission to revise the definition of
5 See Notice of an Application of BF Enterprises,
Inc. under Section 12(h) of the Securities Exchange
Act of 1934, Release No. 34–64479 (May 12, 2011)
[76 FR 28482].
6 Seven different commentators submitted the
nine comment letters. The commentators were:
Daniel F. Raider (June 6, 2011 and June 27, 2011)
(‘‘Raider Letters’’); John D. Browning (June 16,
2011) (‘‘Browning Letter’’); Jeremy Q. Zhu (June 16,
2011) (‘‘Zhu Letter’’); Paul Blumenstein (June 16,
2011 and Aug. 2, 2011) (‘‘Blumenstein Letters’’);
John H. Norberg (June 15, 2011) (‘‘Norberg Letter’’);
Joseph M. Sullivan (June 13, 2011) (‘‘Sullivan
Letter’’); and James E. Mitchell (June 13, 2011)
(‘‘Mitchell Letter’’).
7 See, e.g., Browning Letter and Raider Letters.
8 See, e.g., Browning Letter; Raider Letters and
Zhu Letter.
9 See, e.g., Raider Letter and Blumenstein Letters.
10 Sullivan Letter; Blumenstein Letters and Zhu
Letter.
11 Blumenstein Letters.
12 Blumenstein Letters, Mitchell Letter and
Norberg Letter.
13 Blumenstein Letters and Zhu Letter.
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‘‘holder of record’’ to reflect the
concentration of ownership of securities
of current and former Exchange Act
reporting companies in ‘‘street name,’’
noting that the current definition allows
companies to deregister under the
Exchange Act despite having beneficial
owners well in excess of current
thresholds.14 One commentator
explained that company shareholders
who purchased their shares on the open
market ‘‘did so with the reasonable
expectation that their shares would
enjoy continued liquidity for so long as
the Company’s business remained
viable.’’ 15 This commentator argued
that the purpose for establishing the
BFE Trusts as owners of BF Enterprises
common stock should not serve as
grounds for granting the application
when the company’s purpose in
effecting the reverse/forward stock split
was to cease filing Exchange Act
reports. Some commentators urged the
Commission not to provide the relief
requested in the application, but, rather,
to address the company’s arguments in
the context of a reconsideration of how
shareholders are counted and how many
holders should trigger Exchange Act
registration.16 Finally, certain of the
commentators also disputed factual
assertions in the application, claiming
that the ‘‘market value’’ or ‘‘intrinsic
value’’ of the company’s assets is in
excess of $30 million 17 and that there
is trading interest in the company’s
common stock.18
II
Section 12(g) was enacted in 1964
following a study of the securities
markets commissioned by Congress and
conducted by the staff of the
Commission in the early 1960s (the
‘‘Special Study’’).19 In this study, the
staff was asked to develop a
recommendation for a standard for
registration that would be both
reasonably reliable and easily
enforceable and cover issuers that are
‘‘sufficiently significant from the point
of view of the public interest to warrant
the regulatory burden to be assumed by
the Government and the compliance
14 See, e.g., Sullivan Letter; Norberg Letter; and
Blumenstein Letters.
15 Blumenstein Letters.
16 See, e.g., Sullivan Letter; Norberg Letter; and
Blumenstein Letter.
17 Raider Letters and Blumenstein Letters.
18 Raider Letters; Blumenstein Letters; and
Sullivan Letter (asserting that ‘‘[t]he Company’s
stock has been continuously offered for purchase
and sale by multiple market makers in the over the
counter market since the Company’s deregistration
became effective’’).
19 Report of Special Study of Securities Markets
of the Securities and Exchange Commission, H.R.
Doc. No. 88–95 (1963).
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15149
burden to be imposed on the issuers
involved.’’ 20 Based on a balance of
theoretical and practical considerations,
the Special Study concluded that the
holder of record test would be the most
appropriate measure of public interest
for imposing statutory disclosure
requirements on issuers whose
securities trade over-the-counter.21 The
Commission added an asset test to avoid
imposing Exchange Act reporting
obligations on insubstantial issuers for
which the burden of compliance would
be disproportionate to the public
interest served by public disclosure.22
The Commission subsequently noted
that ‘‘[t]he shareholder-of-record criteria
were intended to provide a certain and
easily applied measure of public
investor interest and to avoid the
difficulties inherent in a standard based
on the number of beneficial owners.
Congress enacted Section 12(g) and
15(d) on the assumption that there was
a significant correlation between the
number of recordholders and the
number of underlying beneficial
owners.’’ 23
Shortly after Congress enacted Section
12(g) in 1964, the Commission adopted
Exchange Act Rule 12g5–1 to define
‘‘held of record’’ for purposes of Section
12(g).24 This definition requires an
issuer to count, as holders of record,
only persons identified as owners on the
record of security holders maintained by
or on behalf of the issuer in accordance
with accepted practice and subject to
certain conditions. The Commission
determined not to require issuers to
count as holders of record the separate
accounts in which securities are held by
brokers, dealers, banks or their
nominees for the benefit of other
persons. The Commission explained
that this would ‘‘have the effect of
simplifying the process by which
companies determine whether or not
they are covered by [Section 12(g)].’’ 25
The Commission further stated that it
would ‘‘determine in the light of
experience whether inclusion of these
accounts at a future date is necessary or
appropriate to prevent circumvention of
the [Exchange] Act and to achieve the
20 Id.
at 17, pt. 3.
21 Id.
22 See SEC Chairman William Cary’s remarks in
the Report of the Committee on Banking and
Currency to Accompany S. 1642, S. Rep. No. 88–
379 (1963) (‘‘Committee Report’’) at 52.
23 See On the Practice of Recording the
Ownership of Securities in the Records of the Issuer
in Other Than the Name of the Beneficial Owner
of Such Securities, Final Report of the Securities
and Exchange Commission (Dec. 3, 1976) at 53.
24 17 CFR 240.12g5–1.
25 See Adoption of Rules 12g5–1 and 12g5–2
Under the Securities Exchange Act of 1934, Release
No. 34–7492 (Jan. 5, 1965) [30 FR 483].
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intended coverage on a uniform and
acceptable basis.’’ 26 The Commission
currently is undertaking such an
assessment.27
Congress added the exemptive
authority in Section 12(h) of the
Exchange Act to provide the
Commission with ‘‘flexibility in the
administration’’ of Section 12(g) and
other reporting provisions of the
Exchange Act applicable to securities
traded in the over-the-counter market.28
To this end, Congress provided the
Commission with ‘‘ample authority to
modify, and provide exemptions from,
the statutory requirements for different
issuers on the basis of the number of
shareholders, trading interest in their
securities, nature and extent of their
business activities, income, asset size, or
other relevant considerations.’’ 29
Congress also recognized that strict
application of numerical triggers may
not, in all cases, be consistent with its
desire to balance the public benefits of
reporting with its burdens on reporting
companies, particularly smaller
companies.30
The Commission balances the factors
in Section 12(h), with no single criterion
alone serving as the basis for granting an
exemption; rather, the criteria set forth
in Section 12(h) serve as ‘‘guidelines’’
and the Commission looks at the
particular circumstances of each matter
to determine whether an exemption
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26 Id.
27 See Testimony on the Future of Capital
Formation, by Mary L. Schapiro, Chairman, U.S.
Securities and Exchange Commission, before the
U.S. House of Representatives Committee on
Oversight and Government Reform (May 10, 2011),
available at https://www.sec.gov/news/testimony/
2011/ts051011mls.html. See also Testimony on
Crowdfunding and Capital Formation, by Meredith
B. Cross, Director, Division of Corporation Finance,
U.S. Securities and Exchange Commission, before
the Subcommittee on TARP, Financial Services and
Bailouts of Public and Private Programs of the U.S.
House of Representatives, Committee on Oversight
and Government Reform (Sept. 15, 2011), available
at https://www.sec.gov/news/testimony/2011/
ts091511mbc.html.
28 Committee Report at 63.
29 Id.
30 The Senate Committee observed: ‘‘Under the
Investment Company Act of 1940, Congress set 100
shareholders as the standard for measuring the
public interest. Such inclusive coverage might,
however, create a burden on issuers and the
Commission unwarranted by the number of
investors protected, the size of companies affected,
and other factors bearing on the public interest.
Unlike the Securities Act, which requires filing
only on the occasion of an offering, the Exchange
Act requires at least annual filings. It is therefore
necessary on purely practical grounds to limit in
some manner the number of issuers required to
comply, so that the flow of reports and proxy
statements will be manageable from the regulatory
standpoint and not disproportionately burdensome
on issuers in relation to the national public interest
to be served.’’ Committee Report at 19.
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meets the standards in Section 12(h).31
We address each of the factors below.
Number of shareholders: The
company asserts, and the commentators
do not dispute, that the company had
fewer than 85 beneficial holders of its
common stock and, excluding the BFE
Trusts, fewer than 25 holders of record
of its common stock as of December 31,
2010. It also is undisputed that the only
reason why BF Enterprises would be
deemed to have 500 or more record
holders is the action of a single
beneficial owner to create 500 trusts and
to transfer ownership of shares of BF
Enterprises’ common stock to those
trusts for the sole purpose of attempting
to cause the company to register its
common stock under Section 12(g). It is
further undisputed that this shareholder
is the only beneficiary of these trusts.
In our view, this increase in the
number of owners appearing on the
company’s books does not reflect a
growth in public holders that requires
the protections of Exchange Act
reporting; nor is this increase
‘‘sufficiently significant from the point
of view of the public interest to warrant
the regulatory burden to be assumed by
the Government and the compliance
burden to be imposed on the [issuer]
involved.’’ 32 Further, imposing
Exchange Act reporting obligations on
BF Enterprises solely because of the
creation of, and deposit of company
shares into, the BFE Trusts would not
result in an increase in ‘‘the number of
investors protected’’ by such reporting,
as Congress used that phrase in the
Committee Report. As such, requiring
the company to report under the
Exchange Act does not advance the
public policy underlying the Exchange
Act’s reporting provisions.
Trading interest in the securities: In
its application, BF Enterprises asserts
31 See, e.g., In the Matter of The National Dollar
Stores, Ltd., Admin. Proc. File No. 3–1212, 81–79
(Sept. 11, 1968) (explaining that ‘‘the criteria [set
forth in Section 12(h)] are designed merely to
provide us with guidelines in considering the basic
tests’’ of whether an exemption is not inconsistent
with the public interest or the protection of
investors; and concluding that limited, conditional
relief warranted ‘‘under the circumstances’’); In the
Matter of Lake Ontario Concrete Limited, Admin.
Proc. File No. 3–2615 (May 23, 1973) (where
Commission recognized ‘‘unusual combination of
circumstances’’ in granting limited exemption); and
In the Matter of Multi Benefit Realty Fund, et al.,
Admin. Proc. File No. 3–4400 (Mar. 11, 1976)
(where four partnerships with aggregate assets of
$183 million and 5,600 limited partners denied
exemption despite lack of trading interest in
applicants’ securities and purported sophistication
of investors because those factors ‘‘outweighed’’ by
the applicants’ size and by the number of investors
involved, with Commission specifically noting
‘‘[t]hough significant, trading interest is not the sole
consideration to be looked at in these matters’’).
32 Special Study at 17.
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that ‘‘there is no trading activity in, and
an absence of any regular market for, the
Company’s securities.’’ While some
commentators disputed the unqualified
nature of this statement, they
acknowledged that the company’s stock
does not trade frequently.33 Indeed,
legal counsel representing the
shareholder who created the BFE Trusts
acknowledged that, ‘‘[i]n 2010, there
were only a few reported trades, and, to
Leeward’s knowledge, there have been
no reported trades in 2011.’’ 34 However,
all of these commentators asserted that
the level of trading interest in BF
Enterprises’ stock depends to some
extent upon the availability of its
financial information and news.35
While we are mindful that the
shareholders of BF Enterprises may
benefit in the ways they explained in
their comment letters if the company
were to resume Exchange Act
reporting—e.g., increased transparency,
greater market liquidity, enhanced
management accountability—we also
must consider the burden of Exchange
Act reporting on an entity such as BF
Enterprises and whether there is
currently sufficient trading interest to
warrant the compliance burden to be
imposed. While we recognize that, with
more information, there may be more
trading interest, it does not appear to us
that there currently exists sufficient
trading interest that would justify
imposing the compliance burdens of
Exchange Act reporting on the
company.
We note that, according to
otcquote.com, 47 trades, covering fewer
than 27,000 shares, in the company’s
common stock were effectuated in the
over-the-counter market during the
three-year period from January 1, 2009
through December 31, 2011.36 This
trading activity is of a level that the
Commission has determined in the past
militates toward granting exemptive
relief under Section 12(h).37 That the
33 Raider Letters; Blumenstein Letters; and
Browning Letter.
34 Blumenstein Letters.
35 See, e.g., Raider Letters (explaining that, due to
the company deregistering under the Exchange Act,
‘‘it is no surprise that there is only limited interest
in trading Company stock’’).
36 Specifically, in 2009, there were 11 trades on
six days on volume of 6,446 shares; in 2010, there
were 22 trades on nine days on volume of 13,200
shares; and in 2011, there were 14 trades on eight
days on volume of 7,127 shares.
37 The Commission determined that there was an
‘‘absence of a regular market for the [issuer’s] stock’’
and a ‘‘relatively small number of transactions
effected’’ in the stock where there were only four
bid and one ask quotations for the shares for a oneyear period (followed by a cessation of published
quotations), and a total of 107 sales, involving
12,117 shares, were effected over a 27-month
period. In the Matter of Security Savings and Loan,
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primary reason for the low level of
trading may be the company’s decision
to effect the reverse/forward stock split
and ‘‘go dark’’ does not, in our view,
negatively impact an application under
Section 12(h) where, as here, an issuer
accomplishes deregistration after notice
to its shareholders, including notice of
the negative impact on the market for
the issuer’s securities.38 Further, we
note that the Exchange Act does not
require reporting companies to facilitate
or maintain a market for their securities:
Exchange listing is purely voluntary as
is qualifying for quotation on the OTC
Bulletin Board.
Nature and extent of business
activities, income and asset size: In its
application, BF Enterprises asserts that
it had total assets of $13.3 million as of
December 31, 2010. BF Enterprises also
states that is a ‘‘real estate developer
whose primary business comprises two
properties: a real estate development in
suburban Tampa, Florida, and an office
building in Tempe, Arizona’’ with its
assets ‘‘consisting primarily of real
estate, mortgage loans receivable and
cash and cash equivalents.’’ One
commentator has disputed BF
Enterprises’ statement that its total
assets as of December 31, 2010
amounted to $13.3 million and its 2010
annual net income was approximately
$103,000.39 Specifically, this
commentator estimates the company’s
assets at more than $30 million and
questions the net income amount given
total revenues in 2010 of approximately
$2.7 million. However, even if this
commentator is correct, it is undisputed
that BF Enterprises’ assets exceed the
Section 12(g) asset threshold of $10
million as of December 31, 2010.
It is relevant, nevertheless, that the
securities at issue and the company’s
operations are not of a particularly
complex nature, given the type and
nature of the company’s assets and its
small workforce.40 In particular, BF
Admin. Proc. File Nos. 3–2511, 81–100 (Aug. 25,
1971). The Commission characterized trading
interest as ‘‘inconsequential,’’ ‘‘virtually dormant’’
and ‘‘insignificant’’ where there was an average of
five over-the counter transactions per month for a
total monthly trading volume of 600 to 700 shares,
when compared to 441,700 shares of the same class
traded in one year on the Toronto Stock Exchange.
In the Matter of Lake Ontario Cement Limited,
Admin. Proc. File No. 3–2615 (81–99) (May 23,
1973).
38 Blumenstein Letters (explaining that ‘‘[t]he
Company acknowledged in its information
statement regarding the Reverse Split that a ‘public
market * * * would cease to exist’ for its shares
following the transaction.’’)
39 Raider Letters.
40 The application states that the company has a
total of seven employees. Compare In the Matter of
Multi Benefit Realty Fund, et al., Admin. Proc. File
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Enterprises’ assets and income are
clearly not ‘‘substantial’’ and the
company’s operations are ‘‘limited’’
under Commission precedent.41
Other factors: Several commentators
expressed their concern that a company
‘‘going dark’’ can repurchase their
securities from stranded shareholders at
very substantial discounts to intrinsic
value. While an illiquid market can
result in a market price lower than that
available in a more liquid market, we
note that the antifraud provisions of the
federal securities laws apply to
company repurchases from its
shareholders.42 Accordingly, while the
availability of current Exchange Act
information about a company may
benefit its shareholders who seek to sell
their shares into a public market,
shareholders of all companies—whether
or not subject to Exchange Act
reporting—are protected against fraud in
connection with their sales or purchases
of company stock.
Commentators also expressed a
general concern about the ability of
public companies to ‘‘go dark’’ 43 and
the potentially negative impact an
exemption in this matter would have on
the over-the-counter markets
generally.44 However, the act of ‘‘going
dark’’ is not itself grounds for denying
the application. The appropriate
thresholds for ‘‘going dark’’ generally
are a subject for study and broad public
No. 3–4400 (Mar. 11, 1976) (where Commission
found relevant in assessing this factor that the
investment at issue was ‘‘more complex than those
in most securities’’ because it involved limited
partnership interests in ‘‘highly-leveraged, taxoriented real estate speculations’’).
41 The Commission characterized the applicant’s
income as ‘‘limited’’ where it had ‘‘gross operating
income of $446,888 and net income, after dividends
on savings accounts and federal income taxes, of
$16,988.’’ In the Matter of Security Savings and
Loan, Admin. Proc. File Nos. 3–2511, 81–100 (Aug.
25, 1971). See also In the Matter of Orchard Supply
Building Co., Admin. Proc. File No. 3–789; 81–41
(May 1, 1967) (finding retail sales of over $3.5
million to be ‘‘substantial’’ and recognizing that the
‘‘impact of those sales on interstate commerce
cannot be immaterial’’ where applicant engaged in
the operation of three diversified hardware stores in
the City of San Jose, California).
42 For example, under Section 10(b) of the
Exchange Act and Rule 10b–5 under the Exchange
Act, a privately-held company may be liable for
material misrepresentations or materially
misleading omissions when repurchasing securities
from its shareholders. See, e.g., Smith v. Duff and
Phelps, Inc., 891 F.2d 1567, 1574 (11th Cir.1990)
(holding that closely-held company had duty to
disclose to retiring employee negotiations with
prospective stock purchaser).
43 See, e.g., Browning Letter.
44 See, e.g., Blumenstein Letters (arguing that
‘‘[a]lthough the Commission would only be granting
relief to one company, investors in OTC stocks may
take the granting of such an exemption as an
indication that they should be wary of investing in
any OTC company that is susceptible of going
dark’’).
PO 00000
Frm 00130
Fmt 4703
Sfmt 4703
15151
input and therefore more appropriately
handled through rulemaking.
III
Having considered the application
and the comment letters, we find that
the requested exemption is not
inconsistent with the public interest or
the protection of investors and the
purposes fairly intended by the policy
and provisions of the Exchange Act, for
the following reasons:
(1) As of December 31, 2010, the
company had fewer than 85 beneficial
owners of its common stock and,
excluding the BFE Trusts, fewer than 25
holders of record of its common stock;
(2) The BFE Trusts have only one
beneficiary, who has expressly stated
that its shares are held indirectly
through 500 trust entities formed solely
for the purpose of attempting to cause
the company to register its common
stock under Section 12(g);
(3) There currently appears to be
extremely limited trading interest in BF
Enterprises’ common stock, although we
recognize that this may be due, in part,
to the company having ceased filing
reports under the Exchange Act;
(4) The limited nature and extent of
BF Enterprises’ business activities; and
(5) Repurchases by the company of its
securities are subject to certain antifraud provisions of the federal securities
laws, including Section 10(b) of the
Exchange Act and Rule 10b–5
thereunder.
Accordingly, it is ordered, that
pursuant to Section 12(h) of the
Exchange Act, BF Enterprises is hereby
exempted from the requirement to
register its common stock under Section
12(g) of the Exchange Act, effective
immediately; and
It is further ordered, that this
exemption shall remain in effect only
for so long as counting each of the BFE
Trusts as a separate ‘‘holder of record’’
for purposes of Section 12(g) would be
the sole reason for the number of
holders of record of BF Enterprises’
common stock to equal or exceed 500.
For the Commission, by the Division of
Corporation Finance, pursuant to delegated
authority.45
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2012–6067 Filed 3–13–12; 8:45 am]
BILLING CODE 8011–01–P
45 17
E:\FR\FM\14MRN1.SGM
CFR 200.30–1(e)(7).
14MRN1
]]>Agencies
[Federal Register Volume 77, Number 50 (Wednesday, March 14, 2012)]
[Notices]
[Pages 15148-15151]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-6067]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-66541; File No. 81-937]
Order Granting an Application of BF Enterprises, Inc. Under the
Securities Exchange Act of 1934
March 8, 2012.
I
BF Enterprises, Inc. (``BF Enterprises'' or the ``company'') has
filed an application under Section 12(h) of the Securities Exchange Act
of 1934 (the ``Exchange Act'') \1\ for a Commission order exempting the
company from the requirement to register its common stock under Section
12(g) of the Exchange Act.\2\ Section 12(h) grants the Commission the
authority to exempt by order, upon application of an interested person
and after notice and opportunity for a hearing, any issuer from Section
12(g) ``if the Commission finds, by reason of the number of public
investors, amount of trading interest in the securities, the nature and
extent of the activities of the issuer, income or assets of the issuer,
or otherwise, that such action is not inconsistent with the public
interest or the protection of investors.''
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78l(h).
\2\ 15 U.S.C. 78l(g).
---------------------------------------------------------------------------
In its application, BF Enterprises states that it ``was a reporting
company under the Exchange Act until 2005 and terminated its Exchange
Act registration pursuant to a Form 15 filed with the Commission on
August 30, 2005 in connection with a reverse/forward stock split
transaction,'' which the company's shareholders ``approved * * * on
July 21, 2005 based upon a Schedule 13E-3 filed with the Commission on
March 31, 2005 and as subsequently amended by the Company.'' According
to the application, a shareholder commenced litigation against the
company in the Delaware Chancery Court in 2010 that ultimately resulted
in that shareholder transferring its shares of the company's common
stock to 500 identical trusts before December 31, 2010, the last day of
the company's fiscal year.
Under Section 12(g) of the Exchange Act and the Commission's rules
thereunder, an issuer is required to register a class of its equity
securities if, at the end of the issuer's fiscal year, the securities
are ``held of record'' \3\ by 500 or more persons and the issuer has
total assets exceeding $10 million.\4\ According to the application, BF
Enterprises had total assets of $13.3 million as of December 31, 2010.
In addition, each of the 500 trust entities was identified as an owner
of common stock on the records of security holders maintained by or on
behalf of BF Enterprises. However, BF Enterprises contends that it
should not be required to register its common stock under Section 12(g)
and is seeking an exemptive order to that effect. Specifically, BF
Enterprises asserts that exemptive relief would be consistent with the
standards articulated in Section 12(h) because: (1) BF Enterprises has
fewer than 85 total beneficial owners of its common stock, one of which
has expressly stated that its shares are held indirectly through 500
trust entities formed solely for the purpose of attempting to cause the
company to register its common stock under Section 12(g) (the ``BFE
Trusts''); (2) as of December 31, 2010, BF Enterprises had total assets
of approximately $13.3 million and 2010 annual net income of
approximately $103,000; (3) BF Enterprises has a total of seven
employees and its primary business comprises two parcels of real
estate; and (4) there is no trading activity in, and an absence of any
regular market for, BF Enterprises' common stock.
---------------------------------------------------------------------------
\3\ 17 CFR 240.12g5-1. Exchange Act Rule 12g-5 states that:
``For purposes of determining whether an issuer is subject to the
provisions of sections 12(g) and 15(d) of the Act, securities shall
be deemed to be `held of record' by each person who is identified as
the owner of such securities on records of security holders
maintained by or on behalf of the issuer,'' which is subject to
certain conditions set forth in Rule 12g-5.
\4\ 15 U.S.C. 78l(g)(1) and 17 CFR 240.12g-1. When Section 12(g)
was enacted, the asset threshold was set at $1 million. The asset
threshold has been increased on several occasions, most recently to
$10 million in 1996. See Relief From Reporting by Small Issuers,
Release No. 34-37157 (May 1, 1996) [61 FR 21353].
---------------------------------------------------------------------------
On May 12, 2011, the Commission issued a notice of the filing of
the application to give any interested person an opportunity to
``submit to the Commission in writing its views on any substantial
facts bearing on the
[[Page 15149]]
application or the desirability of a hearing thereon.'' \5\ The
Commission received nine comment letters on the application,\6\ some of
which were from shareholders of BF Enterprises and all of which opposed
the application.
---------------------------------------------------------------------------
\5\ See Notice of an Application of BF Enterprises, Inc. under
Section 12(h) of the Securities Exchange Act of 1934, Release No.
34-64479 (May 12, 2011) [76 FR 28482].
\6\ Seven different commentators submitted the nine comment
letters. The commentators were: Daniel F. Raider (June 6, 2011 and
June 27, 2011) (``Raider Letters''); John D. Browning (June 16,
2011) (``Browning Letter''); Jeremy Q. Zhu (June 16, 2011) (``Zhu
Letter''); Paul Blumenstein (June 16, 2011 and Aug. 2, 2011)
(``Blumenstein Letters''); John H. Norberg (June 15, 2011)
(``Norberg Letter''); Joseph M. Sullivan (June 13, 2011) (``Sullivan
Letter''); and James E. Mitchell (June 13, 2011) (``Mitchell
Letter'').
---------------------------------------------------------------------------
Commentators contended that the Commission should deny the
application because the company's shareholders have been harmed by the
company's decision to cease filing reports under the Exchange Act.
Among other things, the commentators raised concerns about the
company's lack of transparency \7\ and the detrimental effect of that
lack of transparency on security holders, particularly in terms of
liquidity \8\ and accountability of management.\9\ Specifically, some
commentators claimed that the company's reverse/forward stock split
transaction was unfair to shareholders by leaving them with few or no
alternatives to achieving fair value for their investment, particularly
when there is a concentration of share ownership in management.\10\ In
the view of one of these commentators, it would have been fairer to
shareholders if the company had chosen to go private--e.g., through a
management buyout or sale to a third party--rather than ``go dark.''
\11\ Commentators also expressed concern that the lack of publicly
available information about the company may have resulted in the
company repurchasing its common stock from the public at prices lower
than those that would have been available in a more informed and liquid
market.\12\ Others expressed concern about a perceived trend in
companies ``going dark'' and the negative impact this trend has on the
capital markets generally.\13\
---------------------------------------------------------------------------
\7\ See, e.g., Browning Letter and Raider Letters.
\8\ See, e.g., Browning Letter; Raider Letters and Zhu Letter.
\9\ See, e.g., Raider Letter and Blumenstein Letters.
\10\ Sullivan Letter; Blumenstein Letters and Zhu Letter.
\11\ Blumenstein Letters.
\12\ Blumenstein Letters, Mitchell Letter and Norberg Letter.
\13\ Blumenstein Letters and Zhu Letter.
---------------------------------------------------------------------------
Some commentators urged the Commission to revise the definition of
``holder of record'' to reflect the concentration of ownership of
securities of current and former Exchange Act reporting companies in
``street name,'' noting that the current definition allows companies to
deregister under the Exchange Act despite having beneficial owners well
in excess of current thresholds.\14\ One commentator explained that
company shareholders who purchased their shares on the open market
``did so with the reasonable expectation that their shares would enjoy
continued liquidity for so long as the Company's business remained
viable.'' \15\ This commentator argued that the purpose for
establishing the BFE Trusts as owners of BF Enterprises common stock
should not serve as grounds for granting the application when the
company's purpose in effecting the reverse/forward stock split was to
cease filing Exchange Act reports. Some commentators urged the
Commission not to provide the relief requested in the application, but,
rather, to address the company's arguments in the context of a
reconsideration of how shareholders are counted and how many holders
should trigger Exchange Act registration.\16\ Finally, certain of the
commentators also disputed factual assertions in the application,
claiming that the ``market value'' or ``intrinsic value'' of the
company's assets is in excess of $30 million \17\ and that there is
trading interest in the company's common stock.\18\
---------------------------------------------------------------------------
\14\ See, e.g., Sullivan Letter; Norberg Letter; and Blumenstein
Letters.
\15\ Blumenstein Letters.
\16\ See, e.g., Sullivan Letter; Norberg Letter; and Blumenstein
Letter.
\17\ Raider Letters and Blumenstein Letters.
\18\ Raider Letters; Blumenstein Letters; and Sullivan Letter
(asserting that ``[t]he Company's stock has been continuously
offered for purchase and sale by multiple market makers in the over
the counter market since the Company's deregistration became
effective'').
---------------------------------------------------------------------------
II
Section 12(g) was enacted in 1964 following a study of the
securities markets commissioned by Congress and conducted by the staff
of the Commission in the early 1960s (the ``Special Study'').\19\ In
this study, the staff was asked to develop a recommendation for a
standard for registration that would be both reasonably reliable and
easily enforceable and cover issuers that are ``sufficiently
significant from the point of view of the public interest to warrant
the regulatory burden to be assumed by the Government and the
compliance burden to be imposed on the issuers involved.'' \20\ Based
on a balance of theoretical and practical considerations, the Special
Study concluded that the holder of record test would be the most
appropriate measure of public interest for imposing statutory
disclosure requirements on issuers whose securities trade over-the-
counter.\21\ The Commission added an asset test to avoid imposing
Exchange Act reporting obligations on insubstantial issuers for which
the burden of compliance would be disproportionate to the public
interest served by public disclosure.\22\ The Commission subsequently
noted that ``[t]he shareholder-of-record criteria were intended to
provide a certain and easily applied measure of public investor
interest and to avoid the difficulties inherent in a standard based on
the number of beneficial owners. Congress enacted Section 12(g) and
15(d) on the assumption that there was a significant correlation
between the number of recordholders and the number of underlying
beneficial owners.'' \23\
---------------------------------------------------------------------------
\19\ Report of Special Study of Securities Markets of the
Securities and Exchange Commission, H.R. Doc. No. 88-95 (1963).
\20\ Id. at 17, pt. 3.
\21\ Id.
\22\ See SEC Chairman William Cary's remarks in the Report of
the Committee on Banking and Currency to Accompany S. 1642, S. Rep.
No. 88-379 (1963) (``Committee Report'') at 52.
\23\ See On the Practice of Recording the Ownership of
Securities in the Records of the Issuer in Other Than the Name of
the Beneficial Owner of Such Securities, Final Report of the
Securities and Exchange Commission (Dec. 3, 1976) at 53.
---------------------------------------------------------------------------
Shortly after Congress enacted Section 12(g) in 1964, the
Commission adopted Exchange Act Rule 12g5-1 to define ``held of
record'' for purposes of Section 12(g).\24\ This definition requires an
issuer to count, as holders of record, only persons identified as
owners on the record of security holders maintained by or on behalf of
the issuer in accordance with accepted practice and subject to certain
conditions. The Commission determined not to require issuers to count
as holders of record the separate accounts in which securities are held
by brokers, dealers, banks or their nominees for the benefit of other
persons. The Commission explained that this would ``have the effect of
simplifying the process by which companies determine whether or not
they are covered by [Section 12(g)].'' \25\ The Commission further
stated that it would ``determine in the light of experience whether
inclusion of these accounts at a future date is necessary or
appropriate to prevent circumvention of the [Exchange] Act and to
achieve the
[[Page 15150]]
intended coverage on a uniform and acceptable basis.'' \26\ The
Commission currently is undertaking such an assessment.\27\
---------------------------------------------------------------------------
\24\ 17 CFR 240.12g5-1.
\25\ See Adoption of Rules 12g5-1 and 12g5-2 Under the
Securities Exchange Act of 1934, Release No. 34-7492 (Jan. 5, 1965)
[30 FR 483].
\26\ Id.
\27\ See Testimony on the Future of Capital Formation, by Mary
L. Schapiro, Chairman, U.S. Securities and Exchange Commission,
before the U.S. House of Representatives Committee on Oversight and
Government Reform (May 10, 2011), available at https://www.sec.gov/news/testimony/2011/ts051011mls.html. See also Testimony on
Crowdfunding and Capital Formation, by Meredith B. Cross, Director,
Division of Corporation Finance, U.S. Securities and Exchange
Commission, before the Subcommittee on TARP, Financial Services and
Bailouts of Public and Private Programs of the U.S. House of
Representatives, Committee on Oversight and Government Reform (Sept.
15, 2011), available at https://www.sec.gov/news/testimony/2011/ts091511mbc.html.
---------------------------------------------------------------------------
Congress added the exemptive authority in Section 12(h) of the
Exchange Act to provide the Commission with ``flexibility in the
administration'' of Section 12(g) and other reporting provisions of the
Exchange Act applicable to securities traded in the over-the-counter
market.\28\ To this end, Congress provided the Commission with ``ample
authority to modify, and provide exemptions from, the statutory
requirements for different issuers on the basis of the number of
shareholders, trading interest in their securities, nature and extent
of their business activities, income, asset size, or other relevant
considerations.'' \29\ Congress also recognized that strict application
of numerical triggers may not, in all cases, be consistent with its
desire to balance the public benefits of reporting with its burdens on
reporting companies, particularly smaller companies.\30\
---------------------------------------------------------------------------
\28\ Committee Report at 63.
\29\ Id.
\30\ The Senate Committee observed: ``Under the Investment
Company Act of 1940, Congress set 100 shareholders as the standard
for measuring the public interest. Such inclusive coverage might,
however, create a burden on issuers and the Commission unwarranted
by the number of investors protected, the size of companies
affected, and other factors bearing on the public interest. Unlike
the Securities Act, which requires filing only on the occasion of an
offering, the Exchange Act requires at least annual filings. It is
therefore necessary on purely practical grounds to limit in some
manner the number of issuers required to comply, so that the flow of
reports and proxy statements will be manageable from the regulatory
standpoint and not disproportionately burdensome on issuers in
relation to the national public interest to be served.'' Committee
Report at 19.
---------------------------------------------------------------------------
The Commission balances the factors in Section 12(h), with no
single criterion alone serving as the basis for granting an exemption;
rather, the criteria set forth in Section 12(h) serve as ``guidelines''
and the Commission looks at the particular circumstances of each matter
to determine whether an exemption meets the standards in Section
12(h).\31\ We address each of the factors below.
---------------------------------------------------------------------------
\31\ See, e.g., In the Matter of The National Dollar Stores,
Ltd., Admin. Proc. File No. 3-1212, 81-79 (Sept. 11, 1968)
(explaining that ``the criteria [set forth in Section 12(h)] are
designed merely to provide us with guidelines in considering the
basic tests'' of whether an exemption is not inconsistent with the
public interest or the protection of investors; and concluding that
limited, conditional relief warranted ``under the circumstances'');
In the Matter of Lake Ontario Concrete Limited, Admin. Proc. File
No. 3-2615 (May 23, 1973) (where Commission recognized ``unusual
combination of circumstances'' in granting limited exemption); and
In the Matter of Multi Benefit Realty Fund, et al., Admin. Proc.
File No. 3-4400 (Mar. 11, 1976) (where four partnerships with
aggregate assets of $183 million and 5,600 limited partners denied
exemption despite lack of trading interest in applicants' securities
and purported sophistication of investors because those factors
``outweighed'' by the applicants' size and by the number of
investors involved, with Commission specifically noting ``[t]hough
significant, trading interest is not the sole consideration to be
looked at in these matters'').
---------------------------------------------------------------------------
Number of shareholders: The company asserts, and the commentators
do not dispute, that the company had fewer than 85 beneficial holders
of its common stock and, excluding the BFE Trusts, fewer than 25
holders of record of its common stock as of December 31, 2010. It also
is undisputed that the only reason why BF Enterprises would be deemed
to have 500 or more record holders is the action of a single beneficial
owner to create 500 trusts and to transfer ownership of shares of BF
Enterprises' common stock to those trusts for the sole purpose of
attempting to cause the company to register its common stock under
Section 12(g). It is further undisputed that this shareholder is the
only beneficiary of these trusts.
In our view, this increase in the number of owners appearing on the
company's books does not reflect a growth in public holders that
requires the protections of Exchange Act reporting; nor is this
increase ``sufficiently significant from the point of view of the
public interest to warrant the regulatory burden to be assumed by the
Government and the compliance burden to be imposed on the [issuer]
involved.'' \32\ Further, imposing Exchange Act reporting obligations
on BF Enterprises solely because of the creation of, and deposit of
company shares into, the BFE Trusts would not result in an increase in
``the number of investors protected'' by such reporting, as Congress
used that phrase in the Committee Report. As such, requiring the
company to report under the Exchange Act does not advance the public
policy underlying the Exchange Act's reporting provisions.
---------------------------------------------------------------------------
\32\ Special Study at 17.
---------------------------------------------------------------------------
Trading interest in the securities: In its application, BF
Enterprises asserts that ``there is no trading activity in, and an
absence of any regular market for, the Company's securities.'' While
some commentators disputed the unqualified nature of this statement,
they acknowledged that the company's stock does not trade
frequently.\33\ Indeed, legal counsel representing the shareholder who
created the BFE Trusts acknowledged that, ``[i]n 2010, there were only
a few reported trades, and, to Leeward's knowledge, there have been no
reported trades in 2011.'' \34\ However, all of these commentators
asserted that the level of trading interest in BF Enterprises' stock
depends to some extent upon the availability of its financial
information and news.\35\
---------------------------------------------------------------------------
\33\ Raider Letters; Blumenstein Letters; and Browning Letter.
\34\ Blumenstein Letters.
\35\ See, e.g., Raider Letters (explaining that, due to the
company deregistering under the Exchange Act, ``it is no surprise
that there is only limited interest in trading Company stock'').
---------------------------------------------------------------------------
While we are mindful that the shareholders of BF Enterprises may
benefit in the ways they explained in their comment letters if the
company were to resume Exchange Act reporting--e.g., increased
transparency, greater market liquidity, enhanced management
accountability--we also must consider the burden of Exchange Act
reporting on an entity such as BF Enterprises and whether there is
currently sufficient trading interest to warrant the compliance burden
to be imposed. While we recognize that, with more information, there
may be more trading interest, it does not appear to us that there
currently exists sufficient trading interest that would justify
imposing the compliance burdens of Exchange Act reporting on the
company.
We note that, according to otcquote.com, 47 trades, covering fewer
than 27,000 shares, in the company's common stock were effectuated in
the over-the-counter market during the three-year period from January
1, 2009 through December 31, 2011.\36\ This trading activity is of a
level that the Commission has determined in the past militates toward
granting exemptive relief under Section 12(h).\37\ That the
[[Page 15151]]
primary reason for the low level of trading may be the company's
decision to effect the reverse/forward stock split and ``go dark'' does
not, in our view, negatively impact an application under Section 12(h)
where, as here, an issuer accomplishes deregistration after notice to
its shareholders, including notice of the negative impact on the market
for the issuer's securities.\38\ Further, we note that the Exchange Act
does not require reporting companies to facilitate or maintain a market
for their securities: Exchange listing is purely voluntary as is
qualifying for quotation on the OTC Bulletin Board.
---------------------------------------------------------------------------
\36\ Specifically, in 2009, there were 11 trades on six days on
volume of 6,446 shares; in 2010, there were 22 trades on nine days
on volume of 13,200 shares; and in 2011, there were 14 trades on
eight days on volume of 7,127 shares.
\37\ The Commission determined that there was an ``absence of a
regular market for the [issuer's] stock'' and a ``relatively small
number of transactions effected'' in the stock where there were only
four bid and one ask quotations for the shares for a one-year period
(followed by a cessation of published quotations), and a total of
107 sales, involving 12,117 shares, were effected over a 27-month
period. In the Matter of Security Savings and Loan, Admin. Proc.
File Nos. 3-2511, 81-100 (Aug. 25, 1971). The Commission
characterized trading interest as ``inconsequential,'' ``virtually
dormant'' and ``insignificant'' where there was an average of five
over-the counter transactions per month for a total monthly trading
volume of 600 to 700 shares, when compared to 441,700 shares of the
same class traded in one year on the Toronto Stock Exchange. In the
Matter of Lake Ontario Cement Limited, Admin. Proc. File No. 3-2615
(81-99) (May 23, 1973).
\38\ Blumenstein Letters (explaining that ``[t]he Company
acknowledged in its information statement regarding the Reverse
Split that a `public market * * * would cease to exist' for its
shares following the transaction.'')
---------------------------------------------------------------------------
Nature and extent of business activities, income and asset size: In
its application, BF Enterprises asserts that it had total assets of
$13.3 million as of December 31, 2010. BF Enterprises also states that
is a ``real estate developer whose primary business comprises two
properties: a real estate development in suburban Tampa, Florida, and
an office building in Tempe, Arizona'' with its assets ``consisting
primarily of real estate, mortgage loans receivable and cash and cash
equivalents.'' One commentator has disputed BF Enterprises' statement
that its total assets as of December 31, 2010 amounted to $13.3 million
and its 2010 annual net income was approximately $103,000.\39\
Specifically, this commentator estimates the company's assets at more
than $30 million and questions the net income amount given total
revenues in 2010 of approximately $2.7 million. However, even if this
commentator is correct, it is undisputed that BF Enterprises' assets
exceed the Section 12(g) asset threshold of $10 million as of December
31, 2010.
---------------------------------------------------------------------------
\39\ Raider Letters.
---------------------------------------------------------------------------
It is relevant, nevertheless, that the securities at issue and the
company's operations are not of a particularly complex nature, given
the type and nature of the company's assets and its small
workforce.\40\ In particular, BF Enterprises' assets and income are
clearly not ``substantial'' and the company's operations are
``limited'' under Commission precedent.\41\
---------------------------------------------------------------------------
\40\ The application states that the company has a total of
seven employees. Compare In the Matter of Multi Benefit Realty Fund,
et al., Admin. Proc. File No. 3-4400 (Mar. 11, 1976) (where
Commission found relevant in assessing this factor that the
investment at issue was ``more complex than those in most
securities'' because it involved limited partnership interests in
``highly-leveraged, tax-oriented real estate speculations'').
\41\ The Commission characterized the applicant's income as
``limited'' where it had ``gross operating income of $446,888 and
net income, after dividends on savings accounts and federal income
taxes, of $16,988.'' In the Matter of Security Savings and Loan,
Admin. Proc. File Nos. 3-2511, 81-100 (Aug. 25, 1971). See also In
the Matter of Orchard Supply Building Co., Admin. Proc. File No. 3-
789; 81-41 (May 1, 1967) (finding retail sales of over $3.5 million
to be ``substantial'' and recognizing that the ``impact of those
sales on interstate commerce cannot be immaterial'' where applicant
engaged in the operation of three diversified hardware stores in the
City of San Jose, California).
---------------------------------------------------------------------------
Other factors: Several commentators expressed their concern that a
company ``going dark'' can repurchase their securities from stranded
shareholders at very substantial discounts to intrinsic value. While an
illiquid market can result in a market price lower than that available
in a more liquid market, we note that the antifraud provisions of the
federal securities laws apply to company repurchases from its
shareholders.\42\ Accordingly, while the availability of current
Exchange Act information about a company may benefit its shareholders
who seek to sell their shares into a public market, shareholders of all
companies--whether or not subject to Exchange Act reporting--are
protected against fraud in connection with their sales or purchases of
company stock.
---------------------------------------------------------------------------
\42\ For example, under Section 10(b) of the Exchange Act and
Rule 10b-5 under the Exchange Act, a privately-held company may be
liable for material misrepresentations or materially misleading
omissions when repurchasing securities from its shareholders. See,
e.g., Smith v. Duff and Phelps, Inc., 891 F.2d 1567, 1574 (11th
Cir.1990) (holding that closely-held company had duty to disclose to
retiring employee negotiations with prospective stock purchaser).
---------------------------------------------------------------------------
Commentators also expressed a general concern about the ability of
public companies to ``go dark'' \43\ and the potentially negative
impact an exemption in this matter would have on the over-the-counter
markets generally.\44\ However, the act of ``going dark'' is not itself
grounds for denying the application. The appropriate thresholds for
``going dark'' generally are a subject for study and broad public input
and therefore more appropriately handled through rulemaking.
---------------------------------------------------------------------------
\43\ See, e.g., Browning Letter.
\44\ See, e.g., Blumenstein Letters (arguing that ``[a]lthough
the Commission would only be granting relief to one company,
investors in OTC stocks may take the granting of such an exemption
as an indication that they should be wary of investing in any OTC
company that is susceptible of going dark'').
---------------------------------------------------------------------------
III
Having considered the application and the comment letters, we find
that the requested exemption is not inconsistent with the public
interest or the protection of investors and the purposes fairly
intended by the policy and provisions of the Exchange Act, for the
following reasons:
(1) As of December 31, 2010, the company had fewer than 85
beneficial owners of its common stock and, excluding the BFE Trusts,
fewer than 25 holders of record of its common stock;
(2) The BFE Trusts have only one beneficiary, who has expressly
stated that its shares are held indirectly through 500 trust entities
formed solely for the purpose of attempting to cause the company to
register its common stock under Section 12(g);
(3) There currently appears to be extremely limited trading
interest in BF Enterprises' common stock, although we recognize that
this may be due, in part, to the company having ceased filing reports
under the Exchange Act;
(4) The limited nature and extent of BF Enterprises' business
activities; and
(5) Repurchases by the company of its securities are subject to
certain anti-fraud provisions of the federal securities laws, including
Section 10(b) of the Exchange Act and Rule 10b-5 thereunder.
Accordingly, it is ordered, that pursuant to Section 12(h) of the
Exchange Act, BF Enterprises is hereby exempted from the requirement to
register its common stock under Section 12(g) of the Exchange Act,
effective immediately; and
It is further ordered, that this exemption shall remain in effect
only for so long as counting each of the BFE Trusts as a separate
``holder of record'' for purposes of Section 12(g) would be the sole
reason for the number of holders of record of BF Enterprises' common
stock to equal or exceed 500.
For the Commission, by the Division of Corporation Finance,
pursuant to delegated authority.\45\
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\45\ 17 CFR 200.30-1(e)(7).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-6067 Filed 3-13-12; 8:45 am]
BILLING CODE 8011-01-P
