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Proxy Advisory Firm ISS Settles Charges With SEC

Dennis Brack | Bloomberg | Getty Images

Institutional Shareholder Services settled civil charges by U.S. regulators that an employee of the prominent proxy advisory firm shared nonpublic voting data in exchange for meals and concert tickets.

The Securities and Exchange Commission said on Thursday that ISS, a unit of MSCI Inc, will pay a $300,000 penalty and hire an independent compliance consultant.

In settling, ISS neither admitted nor denied the SEC allegations that it violated financial adviser rules designed to prevent misuse of material non-public customer information.

The company previously disclosed that both the SEC and Department of Justice were investigating the matter in its regulatory filings. DOJ did not answer an email seeking comment on the state of its investigation.

Mutual funds, pension organizations and other institutional investors hire firms like ISS to advise them on how to vote on important corporate issue such as executive compensation and board appointments.

The SEC alleged that from 2007 through early 2012, an ISS employee provided a proxy solicitor, a firm that gathers shareholder votes, with nonpublic information revealing how more than 100 ISS clients were voting their proxy ballots.

Cheryl Gustitus, a spokeswoman for ISS, said the firm took "swift action of its own" and also cooperated with the SEC.

"The confidentiality of our clients' information is essential," she said. "We now consider this matter closed."

The company previously disclosed in its regulatory filings that both the SEC and Department of Justice were investigating the matter.

Gustitus said ISS does not expect the DOJ to take any action and a DOJ spokesman said he was not aware of any charges.

"We understand the matter to be closed there," she said.

The case marked the first time the SEC has sued a proxy advisory firm, according to an agency spokesman.

Business groups such as the U.S. Chamber of Commerce have long complained about the influence that proxy advisory firms like ISS can wield in corporate elections.

Most recently, ISS urged JPMorgan Chase shareholders to vote against the re-election of three board members, saying they failed to oversee the bank's risk-taking that led to $6.2 billion in losses from bad credit known as the "London Whale" trades.

Those directors won re-election earlier this week, but they received less than 60 percent of the vote.

The SEC alleged that the ISS employee who revealed the voting intentions of clients received $11,500 worth of sporting and concert tickets, as well as $20,000 in meals.

"Based on emails between the ISS employee and the proxy solicitor, the ISS employee provided the information to the proxy solicitor as a quid pro quo for the tickets and meals he received," the SEC said.

The SEC did not name the ISS employee or the proxy solicitor employee. Gustitus told Reuters that the employee involved in the case was fired in March 2012.

The SEC has been mulling new regulations for proxy advisory firms for several years. In July 2010, it published a 150-page document soliciting comments from the public. Since then, however, the SEC has not followed up with any new rules.

_ By Reuters

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