ISS To Pay SEC $300,000 Settlement For Breach Of Proxy Confidentiality

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The influential shareholder advisory firm Institutional Shareholder Services has agreed to pay the Securities and Exchange Commission $300,000 to settle charges for not safeguarding clients’ confidential proxy voting information. The news release from the agency also said ISS also agreed to retain an independent compliance consultant as part of the settlement.


The SEC Investigation Into ISS

The SEC said today that its investigation showed that an ISS employee gave a proxy solicitor nonpublic information which showed how over 100 of the firm’s advisory clients were voting on their proxy ballots. In exchange for receiving the information, the SEC said the solicitor gave the firm’s employee meals, concert and sporting event tickets and airfare for a trip.

The agency blamed a lack of  “sufficient control over employee access to confidential client vote information” at ISS. It said the employee who handed over the voting information logged onto the ISS website from either home or work and used a personal email account to deliver the proxy voting information to the solicitor.

According to the SEC, the employee no longer works at ISS. However, the confidentiality breach was alleged to have gone on for many years—from 2007 to 2012. The agency said, “ISS failed to establish or enforce written policies and procedures reasonably designed to prevent the misuse of material, nonpublic information by ISS employees.” It also said that the firm did not have enough control over employee access to full databases of confidential proxy voting information.

ISS To Hire A Consultant

The consultant  ISS has agreed to hire as part of the settlement and will evaluate the firm’s procedures and determine if they’re “reasonably designed” to keep proxy voting information confidential. ISS neither admitted nor denied the findings of the SEC.

Recent Cases Worked By ISS

Institutional Shareholder Services has been consulted in countless case involving major companies with shareholders. Most recently, the firm recommended that JPMorgan Chase & Co. (NYSE:JPM) Chairman and CEO Jamie Dimon’s two roles be split.

The firm has also been consulted in the Clearwire Corporation (NASDAQ:CLWR) merger. The advice provided by ISS helped convince Clearwire’s board that the wireless provider should take the first deal offered by Sprint Nextel Corporation (NYSE:S) rather than the later one offered by DISH Network Corp (NASDAQ:DISH).

Of course we don’t know which of ISS’ many influential clients might have been affected by the alleged confidentiality breach.

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