WASHINGTON – A prominent firm in the business of advising big shareholders on how to vote in elections for company directors is paying a $300,000 fine to settle federal civil charges of failing to protect clients’ confidential voting information.
Institutional Shareholder Services agreed to the penalty in a settlement announced Thursday with the Securities and Exchange Commission. Its clients are institutional investors such as large mutual funds and pension funds. The firm, based in Rockville, Md., didn’t admit or deny the SEC’s allegations.
The SEC said that over five years, a former ISS employee gave a vote-gathering firm hired by companies information showing how more than 100 ISS clients planned to vote on ballots for directors. In exchange for getting the information before elections, the SEC said the firm gave the employee about $11,500 in tickets to concerts and sporting events as well as meals and an airline ticket.
Some of the ISS clients didn’t want their vote information revealed before the elections at shareholder meetings because they held large stakes in the companies and their vote could move the companies’ stock price, the SEC said.
It said the breaches of confidential information occurred from 2007 to 2012 and involved ISS clients that participated in a number of significant proxy contests, battles for control of companies waged through votes for directors. The SEC didn’t name which proxy contests were involved.
ISS had inadequate controls over its employees’ access to confidential clients’ vote information and failed to enforce policies to prevent misuse of the data, the agency said.
Under terms of the settlement, ISS also agreed to hire an independent consultant to help ensure its compliance with the securities laws. In addition, ISS was censured, bringing the possibility that it could face a stiffer sanction if the alleged violation is repeated.
ISS is a subsidiary of MSCI Inc., a public company that provides financial analytical information. ISS co-operated in the SEC’s investigation and took action to correct problems such as establishing new policies, the agency said.
“From the beginning, ISS took swift action of its own and also fully co-operated with the SEC to investigate and promptly resolve this matter,” ISS spokeswoman Cheryl Gustitus said in a statement. “The confidentiality of our clients’ information is essential and is of the highest priority to us at ISS. We now consider this matter closed.”
An example of ISS’ high-profile role came recently, when ISS and Glass Lewis, another prominent shareholder advisory firm, recommended removing three members of JPMorgan Chase’s board who also sat on its risk policy committee during last year’s “London whale” $6 billion trading loss. The surprise loss hurt the reputation of the biggest U.S. bank and led to a management shake-up and a congressional investigation.
JPMorgan CEO and Chairman Jamie Dimon easily survived a vote Tuesday that would have called on him to give up his role as chairman. But shareholders sent a message that the bank needed better oversight, giving only narrow approval to the three directors cited by ISS and Glass Lewis.