Proxy advisory firm to pay $300,000 and hire independent compliance officer after employee accused of leaking data to proxy solicitor
Proxy advisory service ISS has agreed to pay $300,000 to settle charges that it failed to protect confidential proxy voting data after an employee gave a solicitor information on voting by more than 100 ISS clients, the SEC says.
‘An SEC investigation found that an employee at ISS provided a proxy solicitor with material, non-public information revealing how more than 100 ISS institutional shareholder advisory clients were voting their proxy ballots,’ the SEC says in a press release. ‘In exchange for voting information, the proxy solicitor provided the ISS employee with meals, expensive tickets to concerts and sporting events, and an airline ticket.’
According to an SEC investigation, the employee passed on confidential information to the proxy solicitor from 2007 to 2012, and ISS during that period failed to establish reasonable policies and procedures to prevent the misuse of such material. The SEC accused ISS of lacking control over access by employees to databases containing confidential voting information of clients, enabling the employee to abuse this information.
‘Proxy advisers must tailor their controls based on the risks of their particular business in order to protect the integrity of the proxy voting process,’ Julie Riewe, deputy chief of the SEC enforcement division’s asset management unit, says in the release. ‘The internal controls at ISS did not adequately address the potential misuse of confidential proxy voting information by company employees.’
Besides the $300,000 settlement, ISS is also obliged to hire an independent compliance consultant who will be tasked with reviewing the proxy advisory firm’s policies and procedures. The ISS ‒ without admitting or denying the findings of the investigation ‒ has pledged to cease from committing or causing any future violations of Section 204A of the Investment Advisers Act.
The SEC began investigating the issue last year when a whistleblower reported the violation. MSCI, the global provider of indices, analytics and governance tools and owner of ISS, later disclosed the violations in a regulatory filing to the SEC.
‘Since learning of the actions of the terminated employee, ISS has thoroughly reviewed its policies and procedures relating to confidential client information and the receipt of gifts and entertainment,’ MSCI says in the filing. ‘As a result of this review, ISS has implemented a new policy specifically addressing communications and contacts with proxy solicitors, enhanced its internal systems to further restrict internal access to client voting information, and conducted further training regarding its gifts and entertainment policy.’
