SEC Staff Reverses Position on Net Neutrality Shareholder Proposals

In February 2011, the SEC's Division of Corporation Finance issued No-Action Letters to each of AT&T Inc., Comcast Corp. and Verizon Communications Inc. that confirmed a basis to omit from their proxy materials shareholder proposals requesting the companies to publicly commit to abide by Internet network neutrality principles - "i.e., operate a neutral network with neutral routing along the company's wireless infrastructure such that the company does not privilege, degrade or prioritize any packet transmitted over its wireless infrastructure based on its source, ownership or destination."  The proposals were excluded under Rule 14a-8(i)(7) as relating to ordinary business operations.

In December 2011, the Nathan Cummings Foundation submitted similar proposals to AT&T, Verizon and Sprint Nextel Corp., noting that since SEC staff last reviewed the issue, net neutrality had continued to be a consistent and hotly contested topic of policy debate in Washington, in the press, in academia and communities throughout the U.S.  Senators Al Franken and Ron Wyden wrote to the SEC in March 2011 about the importance of net neutrality.  The Foundation said they called net neutrality the free speech issue of our time.  AT&T also received identical proposals from Trillium Asset Management, LLC on behalf of three proponents and from the Benedictine Sisters of Mount St. Scholastica.

By No-Action Letters dated February 10 and 13, 2012, SEC staff reversed its 2011 position, explaining that due to the sustained public debate over the last several years concerning net neutrality and the Internet and the increasing recognition that the issue raises significant policy considerations, the proposals may not be omitted in reliance on the ordinary business exclusion.  In the 2011 letters, SEC staff noted increasing levels of public attention, but did not believe that net neutrality had emerged as a consistent topic of widespread public debate such that it would be a significant policy issue.

AT&T filed a preliminary proxy statement on Form PRE 14A on February 21 for the annual meeting scheduled for April 27, 2012 (SEC file no. 1-08610) .

Filings on New Form ABS-15G

As reported in this space on January 21, 2011, issuers of asset-backed securities ("ABS") are required to disclose the last three years of repurchase history in an initial filing on Form ABS-15G by Feb. 14, 2012, with additional disclosures to be required quarterly thereafter.  Not including amendments, 146 filings of the new form had been submitted on EDGAR through February 13.  Many securitizers reported that they had requested but were unable to obtain all information with respect to investor repurchase demands, and that it is possible disclosures may not contain information about all investor demands  made prior July 22, 2010.  Early filers of Form ABS-15G that do present a repurchase demand activity reporting table include:

• RWT Holdings, Inc. on 2/6/12 (SEC file no. 25-131)
• Federal Home Loan Mortgage Corp. on 2/10/12 (file no. 25-240)
• Dexia Real Estate Capital Markets on 2/13/12 (file no. 25-435)
• Wells Fargo Asset Securities Corp. on 2/13/12 (file no. 25-453)

"Dear Potential Investors…"

The IPO Registration Statement filed by social network operator Facebook, Inc. on February 1 (SEC file no. 333-179287) contains an open letter from CEO & Chairman Mark Zuckerberg, making it the fifth internet/tech IPO registrant to do so since Google Inc. presented the concept in 2004 (333-114984).

Google founders Larry Page and Sergey Brin directly addressed a variety of things that they wanted prospective shareholders to know about the more personal side of the company’s history, mission, and values.  Inspired by Warren Buffet’s essays to shareholders in Berkshire Hathaway annual reports, the letter was subtitled "'An Owner's Manual' for Google's Shareholders" and ended up being placed in between the Risk Factors and a special prospectus section that discussed the novel Dutch Auction Process that determined the IPO price and allocation of shares.  Web hosting service provider Rackspace Hosting, Inc. included its 2008 Racker Letter to Investors in essentially the same position of its Dutch Auction IPO prospectus (333-150469).

Media software developer DivX, Inc. went public in September 2006 (333-133855) and was the first IPO issuer after Google to include a letter inside the prospectus.  The DivX founders stress a sentiment common with most letters to potential investors in digital media – the goal of enabling connection. The five DivX signators write, “We want to help creators create and reach broader and more diverse audiences. We want to help everyone become more engaged and forge deeper, more intensive connections.”

Another theme that tends to be addressed in such letters is a commitment to long-term shareholder value.  In the Letter From Our Founder included in the December 2011 IPO prospectus of online gaming developer Zynga, Inc. (333-175298), CEO Mark Pincus states "We will prioritize innovation and long-term growth over quarterly earnings. We will not make short-term decisions that sacrifice our core values or veer from our long-term vision."  The founder and CEO of e-commerce firm Groupon, Inc. strikes a similar note in the Letter From Andrew D. Mason: "When we see opportunities to invest in long-term growth expect that we will pursue them regardless of the short-term impact on our profitability" (Form 424B4 on 11/7/11, 333-174661). 

Both Zynga and Groupon place the letters directly after the Risk Factors section, which follows the Prospectus Summary.  The letters in the Facebook and DivX filings are placed between the MD&A and Business sections of the respective prospectuses.