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Reporting Requirement of Securities Exchange ACT (First Quarter 1997)


A bank appealed the decision rendered by OCC District Counsel regarding certain reporting requirements of the Securities Exchange Act of 1934. The bank issued stock on two occasions during the first six months of the year totaling $6.2 million. The bank filed a registration statement and the periodic reports required by section 13 of the Securities Act. First, the bank requests clarification of the term "alternate reports" in the statute. As an alternative, bank management sought permission to file a call report and management statement in lieu of Form 10-QSB. The appeal states that Form 10-QSB is burdensome and provides no tangible benefit to shareholders or the public. Second, bank management asked if its duty to file periodic reports under OCC's Securities Offering Disclosure Rules became suspended in the fiscal year following the effective date of the registration statement, regardless of the time of the fiscal year in which the statement became effective. In other words, could the bank have reduced its reporting requirement by filing a registration statement that became effective in the fourth quarter instead of an earlier quarter during the year?


The Securities Exchange Act of 1934(Exchange Act) requires any issuer with a class of securities listed on a national securities exchange, and any issuer with more than $10 million in assets and a class of equity security held by more than 500 persons, to register that class of security with the Securities and Exchange Commission (SEC). 15 USC 78/(b), (g); 17 CFR 24. 12g-1. Issuers generally must file periodic reports containing financial information. National banks must register and file with the OCC instead of the SEC. 15 USC 78/(i).

National banks which file a registration statement with the OCC must file the periodic and current reports required by section 13 of the Exchange Act (15USC 78m), as if the securities covered by the registration statement were securities registered pursuant to section 12 of the Exchange Act (15 USC 78/). Banks must file periodic and current reports in accordance with Commission Regulation 15D (17 CFR 240.15d-1 up to but not including 240.15a-1).

Alternate reports. The Exchange Act provides that the SEC may allow the submission of alternative reports of comparable character to periodic reports (15 USC 78m©). However, it offers no guidance concerning acceptable alternative reports. The SEC has not approved any alternative report by regulation.

Suspension of reporting requirements. The bank's duty to file periodic reports under 12 CFR 16.20 is suspended if, at the beginning of the fiscal year, fewer than 300 persons of record hold the class of stock for which the bank filed the registration statement. The bank must still file Form 15 giving notice of the reason that the duty is suspended.


The Ombudsman determined that the bank may not substitute a call report and management statement in lieu of Form 10-QSB. Although call reports may arguably serve as a rough proxy for financial statements, they are not an appropriate substitution for purposes of investor protection. Call report lack the explanatory information contained in footnotes to financial statements. Likewise, the attestation by insiders to information contained in call reports does not provide the level of independence provided in financial statements that have been reviewed by accountants. Regarding the timing issue, the Ombudsman determined that the bank could have reduced its reporting requirements if it had filed its registration statement in the fourth quarter rather than earlier in the year. Because the bank has fewer than 300 shareholders, its reporting requirements cease for the next fiscal year. However, the bank must still file Form 15 giving notice of the reason that duty is suspended.



A bank appealed the OCC's appraisal of the stock of certain dissenting shareholders in a merger transaction. Bank A entered into a plan of merger and acquisition with Bank B. The merger agreement was approved by the requisite number of shareholders of Bank B. Shareholders presenting 22 percent of Bank's B issued and outstanding shares of common stock voted against the proposed merger and perfected their rights as dissenting shareholders.


National bank shareholders who dissent from a merger consummated under 12 USC 215a are entitled to receive the cash value of their stock. To perfect this right, dissenting shareholders must either vote against the merger or give notice at or before the shareholder meeting of their dissent, and make a written request for payment accompanied by their shares of stock within 30 days of consummation of the merger. Paragraph (c) of this section delineates the process of valuing the shares of dissenting shareholders in merger transaction - an appraisal by a three-person committee representing the majority shareholders, the directors of the receiving institution, and a third party selected by the two so selected. Any dissenting shareholder who is unsatisfied with the appraised value of his or her shares, so determine, may appeal to the Comptroller. However, if the bank and dissenting shareholders do not succeed in selecting the committee or in determining the value of the shares within 90 days of consummation of the merger, any interested party may request the OCC to appraise the shares.

After consummation of the merger, the dissenting shareholders appointed an individual to participate in the appraisal committee as prescribed in the statute. However, Bank A was of the opinion that the dissenters had not perfected their rights and as such, Bank A had no obligation to form an appraisal committee for the purpose of determining a value for the dissenting shareholders' stock. In addition, Bank A sought a restraining order in court to prevent the dissenting shareholders from seeking an appraisal of their stock by the OCC. The court ruled that: 1) it was the OCC's responsibility to determine whether a dissenting shareholder has perfected his or her rights to an appraisal by the OCC; and 2) Bank A was in error in assuming that it had the right to determine if the dissenting shareholders had perfected their rights. The court instructed the dissenting shareholders to seek an appraisal of their stock by the OCC, which would include a determination by the OCC on whether or not the dissenters had perfected their rights for an OCC appraisal of their stock.

The OCC determined that the former Bank B shareholders had perfected their rights as dissenting shareholders under the National Bank Act, 12USC 215a. OCC determined that the value of the bank shares held by the dissenting shareholders on the date of the merger was approximately $5.00 higher than the price paid to the shareholders of Bank B who voted in favor of the merger agreement and took cash in exchange for their Bank B stock at closing. Bank A appealed this decision to the ombudsman.


After giving careful consideration to the broader implications of this situation, the ombudsman decided not to accept the appeal through the national bank appeals process. The Comptroller, having once been appealed to functions, according to the statute, as an independent third party in this valuation process. The standards that the Comptroller is required by statute to apply are impartial and do no necessarily favor either party. The statute also specifies that the appraisal rendered by the OCC shall be final and binding as to the value of the shares of the appellant. Therefore, although this situation is not specifically excluded from the definition of an appealable matter by statute or OCC policy, for the reasons mentioned above the ombudsman decided that an additional reappraisal would not be appropriate.