SEC Whistleblower Exposes Alleged Vote-Fixing at Proxy Firms

The New York Post reported on February 12, 2012, that a corporate insider has filed a whistleblower tip with the SEC alleging that an employee of a leading proxy advisory firm has been selling information about upcoming shareholder votes to proxy solicitation firms, which assist corporations in convincing large shareholders to vote their shares in support of management-backed initiatives. Proxy advisory firms counsel large institutional shareholders, such as mutual funds, on which way to vote on important but sometimes controversial management proposals such as mergers, acquisitions and executive-compensation plans.

According to the Post, the whistleblower works for a proxy solicitation firm, and says in his SEC submission that an employee of Institutional Investor Services, Inc. (“ISS”), a leading proxy advisory firm, has repeatedly provided such information to the whistleblower’s firm.  One example, the Post reports, is the leak of information regarding upcoming votes by Fidelity and Blackrock, two mutual-fund companies that control large blocks of voting shares of publicly traded companies.  When solicitation firms like ISS know how large shareholders plan to vote, they can help management spin its presentation to better address the shareholders’ concerns, effectively rigging the system of corporate governance.

While there is no way to know whether the whistleblower tip obtained by the Post will result in an enforcement action leading to a whistleblower award, the Post article demonstrates the wide range of misconduct that can be the subject of whistleblower tips submitted through the new SEC whistleblower program.