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ISS Charged for Failure to Safeguard Client Information

The SEC has charged Institutional Shareholder Services Inc. (ISS) for failing to safeguard the confidential proxy voting information of clients participating in a number of significant proxy contests.  According to the SEC, from 2007 through early 2012, an ISS employee provided information to a proxy solicitor concerning how more than 100 of ISS’ institutional shareholder advisory clients (i.e., institutional investment managers) were voting their proxy ballots. In exchange for vote information, the proxy solicitor gave the employee meals, expensive tickets to concerts and sporting events, and an airline ticket. The employee, who had access to all of ISS’ clients’ proxy voting information, gathered the information by logging into ISS’ voting website from home or work and used his personal email account to communicate voting information to the proxy solicitor. 

This conduct does not appear to be isolated to one employee.  The SEC order states that proxy solicitors cultivated relationships with several ISS account managers, often through free meals, even though: “(a) one of the most important roles of a proxy solicitor is to inform their clients how shareholders are voting their proxies, (b) during the relevant time period, there was virtually no legitimate business reason for ISS’ account managers to have relationships with proxy solicitors, and (c) all of ISS’ account managers had access to voting information that would be very helpful to proxy solicitors.”

ISS has settled the charges with the SEC.  ISS will pay a $300,000 penalty and engage an independent compliance consultant to review its supervisory and compliance policies and procedures.