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June 24, 2003
Ms. Paula Dubberly
Office of Chief Counsel
Division of Corporation Finance
Securities and Exchange
Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Farmer Bros. Co.
Dear Ms. Dubberly:
Acting as
a "Delegate" on behalf of a shareholder of Farmer Bros. Co. ("Company"), I
request a determination by the Securities and Exchange Commission of two
issues concerning the Company's obligations to disclose information:
1. To the
extent that the Company's or any other issuer's obligation to provide
requested information is undisputed, does the issuer have a right to impose
confidentiality conditions or other restrictions on a shareholder's use of
the requested information to make investment decisions?
2. Should the
Company be registered as an investment company under the Investment Company
Act of 1940 ("ICA"), and accordingly be required to comply with the public
reporting and filing requirements of an investment company?
As
indicated in the accompanying copies of my correspondence with the Company
and with one of its attorneys, I requested the Company's report of
information which, I believed, an investment company would be required to
report publicly. I also presented an alternative demand for the records
from which I could obtain the requested information myself. The Company
does not dispute my right to obtain any of these records pursuant to state
law, and has in fact provided the records to another shareholder in response
to an identical demand. The Company has, however, refused to provide the
information unless I agree to confidentiality conditions which would
restrict the use of that information in any investment decisions. When
asked to identify specific items which should be considered confidential or
otherwise restricted, the Company did not do so.
It is my
understanding as a professional fund manager that the essential purpose of
SEC rules and regulations concerning corporate disclosures is to assure fair
access to information which is relevant to investment decisions. Assuming
an investor has a right to obtain relevant information, it would be
pointless if the information could not be used to make investment decisions.
To clarify
this issue, it is not my intention to question the legitimate use of
voluntary confidentiality agreements to facilitate communications, as
provided in Regulation FD and otherwise. What I question is only an
issuer's right to impose SEC "insider" restrictions on an investor as a
condition of the issuer's compliance with an undisputed obligation to
disclose information.
Addressing
my second question, regarding the Company's status as an investment company,
a review of the Company's annual financial statements available on EDGAR
shows that its investment funds have constituted a majority of corporate
assets for the past decade and that the proportion of its investment funds
has been steadily increasing to its current 70% of assets. (Investment
funds were calculated to include what the Company reports simply as “cash
and cash equivalents” as well as items more clearly identified as
securities. Excluding the amounts reported in the “cash and cash
equivalents” category, amounts reported as securities dropped below a
majority of assets only in the 1996 and 1993 fiscal years.) Nevertheless,
the Company has not registered as an investment company and does not
publicly disclose the kind of information that investors need for an
evaluation of a fund manager.
ICA
compliance has been a subject of controversy for the past year. The Company
requested a "no action" letter from the SEC on August 26, 2002 to exclude a
shareholder proposal that would have required compliance with the ICA, which
request the SEC denied on November 15, 2002. (Please let me know if you
wish additional copies of these or related letters which are presumed to be
available in SEC files.) Although the proposal was defeated by a vote that
included opposition by the 52% of outstanding shares controlled by
management, the requirement of ICA compliance was supported by 77% of the
votes cast by public shareholders at the annual meeting, as reported by the
Company in a December 26, 2003 Form 8-K.
The
Company has not responded to repeated requests for an explanation of any
exemption it may claim from ICA requirements of registration as an
investment company, or to a suggestion that the Company apply for an SEC
determination of its status according to
ICA Section 3(b)(2).
Concern about this failure to respond has been heightened by the fact that
the attorney representing the Company in ICA compliance matters co-authored
an article in the January 2003 issue of The Investment Lawyer stating
clearly that an issuer in the Company's circumstances should either register
as an investment company or apply for a
Section 3(b)(2)
exemption.
The
correspondence accompanying this letter as well as other background
information can be found on a web site maintained for participants in a
"Forum" for shareholders of Farmer Bros. Co., at the following internet
address:
www.shareholderforum.com
I will of
course welcome any questions or requests for additional information.
Copies of
this letter are being sent to the attorneys representing the Company in
relation to both the information demand and ICA compliance matters,
encouraging them again to explain their client’s positions on these issues.
Very truly
yours,
Peter F.
Brennan,
as
Delegate
cc: Matthew A. Chambers,
Esquire
Eric S. Waxman,
Esquire
Enclosures:
1.
January 3, 2003 letter of Forum chairman to
directors
2.
January 14, 2003 letter of Forum chairman to
directors
3.
March 13, 2003 letter of Delegate
demanding information
4.
March 31, 2003 letter of Delegate
repeating demand
5.
April 11, 2003 letter of Delegate
repeating demand
6.
May 2, 2003 letter of Forum chairman to
directors
7.
May 15, 2003 letter of Company attorney to
Delegate
8.
May 21, 2003 letter of Forum chairman to
directors
9.
May 30, 2003 letter of Forum chairman to
directors
10.
June 10, 2003 letter of Delegate to
Company attorney
11.
June 12, 2003 letter of Company attorney to
Delegate
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