Re: [gnso-vi-feb10] the "it excludes some applicants" argument

[Richard Tindal <richardtindal@xxxxxx>]

The DAG language limits control OR beneficial ownership.

If you have neither control nor beneficial ownership (both terms are defined in 
the DAG) you can own as many shares of the registry company as you choose

RT


On Jul 6, 2010, at 10:32 AM, Alan Greenberg wrote:

> Let me ask a question as a non-lawyer (and more specifically as someone with 
> little knowledge of securities laws). 
> 
> We have been talking about "control" a lot in this group, and it was pointed 
> out that control can be exercised in a lot of ways other than ownership. 
> Isn't this still a problem with non-beneficial ownership? If you cannot vote 
> in a formal action, you are not the beneficial owner (to oversimplify the 
> full definition). But that does not stop you from exercising control in a 
> plethora of ways that do not involve voting - as long as the beneficial 
> owners (ie those with votes) do not challenge you.
> 
> Have I missed something crucial here?
> 
> Alan
> 
> At 06/07/2010 11:47 AM, Neuman, Jeff wrote:
>> Thanks Richard.  Just to clarify, when you say the resolution does allow 
>> beneficial ownership, you mean up to 2%, correct?  I guess I would be fine 
>> with beneficial ownership of up to 2% if that is what you are saying; 
>> provided that the caveats normally found in law (at least US law – sorry for 
>> being us centric here, but it is all that I really know) are also 
>> represented.  Being able to pool securities or place them into a trust if 
>> that exceeds the limits is a gaming scenario which we know about and one 
>> that we should not tolerate in my humble opinion.
>>  
>> Jeffrey J. Neuman 
>> Neustar, Inc. / Vice President, Law & Policy
>> 
>> 
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>>  
>> From: owner-gnso-vi-feb10@xxxxxxxxx [ mailto:owner-gnso-vi-feb10@xxxxxxxxx] 
>> On Behalf Of Richard Tindal
>> Sent: Tuesday, July 06, 2010 11:02 AM
>> To: Gnso-vi-feb10@xxxxxxxxx
>> Subject: Re: [gnso-vi-feb10] the "it excludes some applicants" argument
>>  
>>  
>> Jeff,
>>  
>> I understand what you're saying.  Given the profile of this issue over the 
>> last year I'll be very surprised if the Board/ Staff didn't carefully review 
>> the details of the Nairobi resolution - however I agree with you that we 
>> don't know this for a fact.
>>  
>> Here are two things we do know though:
>>  
>> 1.     The Resolution, as it stands now,  does allow beneficial ownership of 
>> registries by registrars;  and
>>  
>> 2.     It's up to us to recommend policy.  If we like the like the 
>> Beneficial Ownership language in the DAG we should feel free to incorporate 
>> it in our proposals.    I do like it.    If incorporated in our proposals it 
>> allows registrars to own registries -- but places a limit on control and 
>> influence of that registry.
>>  
>> RT
>>  
>>  
>> On Jul 5, 2010, at 7:54 PM, Neuman, Jeff wrote:
>> 
>> 
>> Richard,
>>  
>> I appreciate this thread, but we are not sure, nor will they ever confirm or 
>> deny, what ICANN staff’s motivation was behind the language they used.  It 
>> could be as simple as the comments I filed to DAG 1 or 2 (can’t remember) 
>> asking ICANN staff to look at United States SEC Rule 405 for the definition 
>> of Affiliate/Associate, Ownership/control (where the notion of beneficial 
>> ownership is discussed in definitions).  Or it could actually be deliberate. 
>>  Certainly I would not make the assumption that the Board approved or even 
>> saw this language.
>>  
>> One thing I raised on the last call, which I will repeat in e-mail and will 
>> repeat in comments, is that ICANN staff did not refer to the complete 
>> definition of beneficial ownership as used by the applicable regulations.  
>> Rule 13-d, reprinted below,  talks about how to determine “beneficial 
>> ownership” and if you look at (b) below, that would seem to narrow down some 
>> of the alternatives you imply in your e-mail (i.e., no putting shares into a 
>> trust or pooling agreement, etc.). 
>> 
>> Perhaps this was purposely done, but I would not necessarily make that 
>> assumption since failure to adopt the entire definition as reprinted below 
>> in (b) would be subject to incredible gaming (now that I have told everyone 
>> how to do it J).
>>  
>> +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
>>  
>> 
>> 
>> Rule 13d-3 -- Determination of Beneficial Ownership
>> 
>> 
>> 
>> 
>> 
>> 
>>  
>> a.     For the purposes of sections 13(d) and 13(g) of the Act a beneficial 
>> owner of a security includes any person who, directly or indirectly, through 
>> any contract, arrangement, understanding, relationship, or otherwise has or 
>> shares:
>> 1.    Voting power which includes the power to vote, or to direct the voting 
>> of, such security; and/or,
>> 2.    Investment power which includes the power to dispose, or to direct the 
>> disposition of, such security.
>> b.    Any person who, directly or indirectly, creates or uses a trust, 
>> proxy, power of attorney, pooling arrangement or any other contract, 
>> arrangement, or device with the purpose of effect of divesting such person 
>> of beneficial ownership of a security or preventing the vesting of such 
>> beneficial ownership as part of a plan or scheme to evade the reporting 
>> requirements of section 13(d) or (g) of the Act shall be deemed for purposes 
>> of such sections to be the beneficial owner of such security.
>> c.     All securities of the same class beneficially owned by a person, 
>> regardless of the form which such beneficial ownership takes, shall be 
>> aggregated in calculating the number of shares beneficially owned by such 
>> person.
>> d.    Notwithstanding the provisions of paragraphs (a) and (c) of this rule:
>> 1.     
>>                                       i.        A person shall be deemed to 
>> be the beneficial owner of a security, subject to the provisions of 
>> paragraph (b) of this rule, if that person has the right to acquire 
>> beneficial ownership of such security, as defined in Rule 13d-3(a) within 
>> sixty days, including but not limited to any right to acquire:
>> A.    through the exercise of any option, warrant or right;
>> B.    through the conversion of a security;
>> C.    pursuant to the power to revoke a trust, discretionary account, or 
>> similar arrangement; or
>> D.    pursuant to the automatic termination of a trust, discretionary 
>> account or similar arrangement; provided, however, any person who acquires a 
>> security or power specified in paragraphs (d)(1)(i)(A), (B) or (C), of this 
>> section, with the purpose or effect of changing or influencing the control 
>> of the issuer, or in connection with or as a participant in any transaction 
>> having such purpose or effect, immediately upon such acquisition shall be 
>> deemed to be the beneficial owner of the securities which may be acquired 
>> through the exercise or conversion of such security or power. Any securities 
>> not outstanding which are subject to such options, warrants, rights or 
>> conversion privileges shall be deemed to be outstanding for the purpose of 
>> computing the percentage of outstanding securities of the class owned by 
>> such person but shall not be deemed to be outstanding for the purpose of 
>> computing the percentage of the class by any other person.
>>                                      ii.        Paragraph (d)(1)(i) of this 
>> section remains applicable for the purpose of determining the obligation to 
>> file with respect to the underlying security even though the option, 
>> warrant, right or convertible security is of a class of equity security, as 
>> defined in Rule 13d-1(i), and may therefore give rise to a separate 
>> obligation to file.
>> 2.    A member of a national securities exchange shall not be deemed to be a 
>> beneficial owner of securities held directly or indirectly by it on behalf 
>> of another person solely because such member is the record holder of such 
>> securities and, pursuant to the rules of such exchange, may direct the vote 
>> of such securities, without instruction, on other than contested matters or 
>> matters that may affect substantially the rights or privileges of the 
>> holders of the securities to be voted, but is otherwise precluded by the 
>> rules of such exchange from voting without instruction.
>> 3.    A person who in the ordinary course of his business is a pledgee of 
>> securities under a written pledge agreement shall not be deemed to be the 
>> beneficial owner of such pledged securities until the pledgee AE1 has taken 
>> all formal steps necessary which are required to declare a default and 
>> determines that the power to vote or to direct the vote or to dispose or to 
>> direct the disposition of such pledged securities will be exercised, 
>> provided, that:
>>                                       i.        The pledgee agreement is 
>> bona fide and was not entered into with the purpose nor with the effect of 
>> changing or influencing the control of the issuer, nor in connection with 
>> any transaction having such purpose or effect, including any transaction 
>> subject to Rule 13d-3(b);
>>                                      ii.        The pledgee is a person 
>> specified in Rule 13d-1(b)(1)(ii), including persons meeting the conditions 
>> set forth in paragraph (G) thereof; and
>>                                     iii.        The pledgee agreement, prior 
>> to default, does not grant to the pledgee;
>> A.    The power to vote or to direct the vote of the pledged securities; or
>> B.    The power to dispose or direct the disposition of the pledged 
>> securities, other than the grant of such power(s) pursuant to a pledge 
>> agreement under which credit is extended subject to regulation T and in 
>> which the pledgee is a broker or dealer registered under section 15 of the 
>> act.
>> 4.    A person engaged in business as an underwriter of securities who 
>> acquires securities through his participation in good faith in a firm 
>> commitment underwriting registered under the Securities Act of 1933 shall 
>> not be deemed to be the beneficial owner of such securities until the 
>> expiration of forty days after the date of such acquisition.
>>  
>>  
>> Jeffrey J. Neuman 
>> Neustar, Inc. / Vice President, Law & Policy
>> 
>> 
>> 
>> The information contained in this e-mail message is intended only for the 
>> use of the recipient(s) named above and may contain confidential and/or 
>> privileged information. If you are not the intended recipient you have 
>> received this e-mail message in error and any review, dissemination, 
>> distribution, or copying of this message is strictly prohibited. If you have 
>> received this communication in error, please notify us immediately and 
>> delete the original message.
>>  
>>  
>> From: owner-gnso-vi-feb10@xxxxxxxxx [ mailto:owner-gnso-vi-feb10@xxxxxxxxx] 
>> On Behalf Of Richard Tindal
>> Sent: Monday, July 05, 2010 10:20 PM
>> To: Gnso-vi-feb10@xxxxxxxxx
>> Subject: [gnso-vi-feb10] the "it excludes some applicants" argument
>>  
>>  
>> I've heard comments that some WG proposals would exclude registrars from 
>> participating in the registry business.  Having re-read the DAG language I 
>> wanted to push back on that notion -- and stimulate some discussion on the 
>> topic.
>>  
>> I've thought for some time now the Staff and Board have become very 
>> sophisticated in their understanding of the cross-ownership issue.   Given 
>> this, I think the DAG 4 language is very carefully worded so that it does 
>> not place limits on 'ownership' of a registry by a registrar.  Rather,  it 
>> places limits on 'beneficial ownership',  which is more akin to limits on 
>> control.
>>  
>> As I review the DAG language it seems clear a registrar could own as much of 
>> a registry as it wanted,  and enjoy any operating profits from that 
>> registry, as long as its 'beneficial ownership' was limited.  Beneficial 
>> ownership includes voting rights or the ability to sell shares.     If the 
>> DAG had meant to place limits purely on ownership I think it would have used 
>> the term "ownership" -  and not the more specific concept of "beneficial 
>> ownership".   
>>  
>> If the DAG language is applied then none of the proposals before this WG 
>> (e.g.  RACK+)  would exclude registrars from owning registries.  Rather, it 
>> would prevent those registrars from having beneficial ownership beyond 15%.  
>>   As such I dont think registrars are excluded from becoming registries.  I 
>> just think they are excluded from having control.
>>  
>> Comments welcome.
>>  
>> RT
>>