Proxy Advisory Firm Fined $300K for Alleged Data Breach

Securiities and Exchange Commission seal SEC
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By Sarah N. Lynch

WASHINGTON -- 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 Thursday that ISS, a unit of MSCI Inc. (MSCI), 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.

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 2009, an ISS employee provided a proxy solicitor, a firm that rounds up 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 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 (JPM) 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 reelection 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 didn't provide the name of the ISS employee or the proxy solicitor employee.


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