Rebuttal of Acquisition of Control

Download official copy (PDF)

October 5, 2015

Re:    Rebuttal of Acquisition of Control of ____________ by ____________ 

Dear ____________:

Thank you for your letter dated, August 6, 2015, regarding the direct and indirect acquisition of control of ____________ by ____________, the ultimate parent of your organization, and its affiliates. In your letter, you describe your organization; urge the Department of Business Oversight to consider ways that investment management service providers can rebut the presumption of control under Financial Code sections 1250(b)(2) and 2035; and offer facts that rebut the presumption that your organization has acquired control of ____________.


Financial Code section 2035 provides that no person shall directly or indirectly acquire control of a licensee under the Money Transmission Act (MTA) unless the Commissioner of Business Oversight (Commissioner) has first approved the acquisition of control. Financial Code section 2003(h) provides that “control” for purposes of the MTA shall have the meaning set forth in Financial Code section 1250. California Financial Code section 1250(b), in pertinent part, provides that a person who “directly or indirectly, owns, controls, holds with the power to vote, or holds proxies representing, 10 percent or more of the then outstanding voting securities issued by another person is presumed to control such other person.” The presumption contained in the cited portion of California Financial Code section 1250(b) is rebuttable. 


Your letter responds to the Department’s request that ____________ explain why it did not obtain the approval of the Commissioner before acquiring a beneficial interest in at least 10 percent of ____________‘s outstanding voting securities. ____________ filing with the U.S. Securities and Exchange Commission (SEC) on SEC Schedule 13G, dated April 8, 2015, discloses that it beneficially owned 3,875,805  shares or 10 percent of the 38,699,042 shares of ____________ voting securities believed to be outstanding. 

____________ and ____________ are each an operating division of ____________, which is wholly owned by ____________.

According to your letter, on June 8, 2015, the funds and accounts advised by ____________ owned, in the aggregate, 3,975,805 shares of ____________’s stock, which was 10.28 percent of ____________’s outstanding shares. ____________ owned 7.95 percent of the outstanding shares of ____________’s stock while ____________ owned 2.33 percent of ____________’s outstanding stock. As of August 6, 2015, funds and accounts advised by ____________ no longer hold any shares of ____________’s stock.  As of August 6, 2015, funds and accounts advised by ____________, another division of ____________ owned, in the aggregate, 1,790,801 shares of

____________’s stock, 4.56 percent of the outstanding.  

As separate operating divisions, ____________ and ____________, along with a third operating division, ____________, make independent investment and proxy voting decisions, conduct investment management activity independently and each operate separate trading desks.  Each operating division has been accorded separate filing status by the SEC for purposes of filing SEC Schedule 13G.

Your letter also represents that ____________ and its affiliates do not beneficially own the shares of ____________’s stock discussed in your letter. Rather, the shares are beneficially owned by the funds and accounts advised by ____________ or ____________. Therefore, while ____________ filed a report with the SEC on SEC Schedule 13G indicating ownership of more that 10 percent of ____________’s stock, the filing disclaimed beneficial ownership of the stock. The actual beneficial owners of the shares were ____________ and ____________, but neither fund owned 10 percent or more of the outstanding shares of ____________’s stock. Moreover, both funds have fundamental investment policies, which provide that they “may not invest in companies for the purpose of exercising control or management.” 

Finally, your letter represents that other holders of ____________’s stock held significantly more shares than the funds advised by ____________. According to your letter, as of February 28, 2015, as reported in ____________’s proxy statement, entities affiliated with ____________ owned 16.7 percent of ____________’s stock and entities affiliated with ____________ owned 14.8 percent and had one board member representative.


Based on the fact that entities affiliated with ____________ and ____________ own 16.7 percent and 14.8 percent of ____________’s stock, respectively, and on the other representations contained in your letter, it appears that ____________ and its affiliates have not acquired control of ____________, as the term “control” is defined by Financial Code section 1250(b).  Accordingly, the Commissioner finds that ____________ has rebutted the presumption of control with regard to its and its affiliates’ holdings of ____________ ‘s stock. 

The Commissioner’s determination applies to the set of circumstances presented in your letter. Please be advised that, among other circumstances, should ____________ or any of its

affiliates acquire any additional shares of ____________’s stock, acquire the shares of any person that controls ____________, enter into any agreement regarding the voting of such shares, take any other action that may be construed to be exercising control over ____________ or any person that controls ____________, or deviate in any way from the representations contained in your letter, the actions may be considered to involve the acquisition of control of ____________.


Please contact the undersigned at 213.897.2172 if you have any questions.




Jan Lynn Owen

Commissioner of Business Oversight




                                        Wallace M. Wong 

                                        Senior Counsel 



                cc:       Robert Venchiarutti, Department of Business Oversight, San Francisco