Institutional Shareholder Services Inc., which helps large investors make voting choices in corporate proxy contests, will pay $300,000 to resolve U.S. regulatory claims that an employee exchanged confidential client voting information for meals and concert tickets.
ISS failed to establish or enforce written policies or safeguards as the employee misused information on more than 100 clients from 2007 through 2012, the Securities and Exchange Commission said today in an administrative order. The firm, based in Rockville, Maryland, also lacked sufficient controls over employee access to databases of confidential client-vote information, the SEC said.
“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, said in a statement.
The action is the second setback in a week for ISS, which helped lead a failed push to split Jamie Dimon's dual roles as JPMorgan Chase & Co.'s chief executive officer and chairman. Shareholders of the biggest U.S. bank voted 32 percent in favor of naming an independent chairman, according to preliminary results released May 21, down from 40 percent a year earlier.
The firm, which settled the claims without admitting or denying wrongdoing, agreed to hire an independent compliance consultant to review its supervisory and compliance policies, the SEC said.
“From the beginning, ISS took swift action of its own and also fully cooperated with the SEC to investigate and promptly resolve this matter,” Cheryl Gustitus, an ISS spokeswoman, said in an e-mailed statement. “The confidentiality of our clients' information is essential and is of the highest priority to us.”
Some ISS clients didn't reveal vote information before shareholder meetings because, given the size of their positions, they could move the issuer's stock price, the SEC said. In a typical example, a proxy solicitor would e-mail the ISS employee a list of clients along with the name of an issuer and particular ballot propositions, and ask “how many & how voted,” according to SEC the order. The ISS employee, who wasn't named in the order, replied by listing the number of shares voted by the shareholder and the choices, the SEC said.
In exchange, the ISS employee was given an airline ticket as well as about $11,500 worth of tickets to sporting events and concerts, the SEC said. The proxy solicitor also paid for about $20,000 in meals with the employee and his family, as well as meals with other ISS employees.
The proxy solicitor also purchased sporting event tickets for at least two other ISS account managers, one of whom informed the solicitor that two large shareholders had withheld their votes in a significant proxy contest, the SEC said.
ISS, a registered investment adviser, is a subsidiary of MSCI Inc., a New York-based company that provides support tools to investment institutions.
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