WASHINGTON--(BUSINESS WIRE)--The whistleblower law firm of Katz, Marshall & Banks, LLP, commends the Securities and Exchange Commission for the successful settlement of charges against Institutional Shareholder Services, Inc. (“ISS”), the nation’s largest shareholder advisory firm, for neglecting to protect the confidential voting information of its clients in proxy contests from approximately 2007 to 2012. Katz, Marshall & Banks represents the whistleblower who provided the SEC with critical information making it possible to institute administrative proceedings against ISS. As part of the settlement announced yesterday, ISS agreed to pay the SEC a $300,000 penalty and to hire a compliance consultant to improve internal controls.
The SEC’s investigation determined that an ISS employee had supplied a proxy solicitor with material, non-public information about the votes that more than 100 institutional shareholder clients had cast in proxy contests leading up to shareholder meetings. In exchange for this information, which ISS’s clients believed was being kept confidential, and which was of significant value to the proxy solicitor in its efforts to advance the goals of client companies, the proxy solicitor provided the ISS employee with expensive sporting and concert tickets, meals and other gifts. The SEC found that ISS had made the illegal scheme possible by willfully failing to establish or enforce procedures and controls that would have prevented such a misuse of material, nonpublic information. This failure, the SEC determined, violated Section 204A of the Investment Advisers Act of 1940.
The whistleblower who provided information about the sale of proxy voting information to the SEC will not receive an award under the SEC Whistleblower Program because that program pays awards only when the whistleblower’s information leads to an enforcement action resulting in more than $1 million in sanctions. “I won’t benefit financially from the SEC’s action,” the whistleblower commented after hearing of the settlement, “but I am glad to have stepped in and protected the rights of investors to a fair and open proxy voting process.”
David J. Marshall, a partner with Katz, Marshall & Banks, said that his client’s actions are typical of whistleblowers who witness securities violations on the part of their employers or related companies. “The whistleblower saw an illegal scheme that harmed investors,” Marshall said. “He reported the scheme to his supervisors and then to the SEC, and that prompted the commission to bring charges.” Marshall added that this case demonstrates the important role that whistleblowers can play in the enforcement of the nation’s securities laws. “The past few months have seen hotly contested proxy fights with potentially huge impacts on business strategies and therefore on the value of shareholders’ investments,” Marshall said. “Our client took action to protect the voting rights of shareholders and to prevent manipulation of the proxy voting process.”
