The U.S. Securities and Exchange Commission (SEC) settled with proxy advisory firm, Institutional Shareholder Services (ISS), after finding that a former employee traded inside information of how clients were voting their proxy ballots for gifts such as meals and concert tickets.
The SEC charged ISS for failing to safeguard the confidential proxy voting information of clients participating in a number of significant proxy contests. The firm agreed to settle the charges by paying US$300,000 and retaining an independent compliance consultant to examine its internal controls. Without admitting or denying the SEC’s findings, ISS also agreed to cease and desist from future violations.
“Proxy advisors must tailor their controls based on the risks of their particular business in order to protect the integrity of the proxy voting process,” said Julie Riewe, deputy chief of the SEC enforcement division’s asset management unit. “The internal controls at ISS did not adequately address the potential misuse of confidential proxy voting information by firm employees.”
According to the SEC’s order instituting settled administrative proceedings, the breach occurred from approximately 2007 to 2012. It says that ISS failed to establish or enforce written policies and procedures reasonably designed to prevent the misuse of material, nonpublic information by ISS employees; specifically that it lacked sufficient controls over employee access to databases of confidential client vote information.
The SEC reports that its investigation found that an employee at ISS provided a proxy solicitor with material, nonpublic information revealing how more than 100 ISS institutional clients were voting their proxies in exchange for meals, expensive tickets to concerts and sporting events, and an airline ticket.