Proxy Firm Failed to Stop Employee from Giving Voting Info to Proxy Solicitor
A large proxy advisory firm agreed to pay a $300,000 fine and retain an independent compliance consultant for failing to implement policies and procedures to prevent an employee from disclosing confidential voting information to a proxy solicitor. The SEC asserts that the employee received tens of thousands of dollars in tickets and meals as a quid pro quo for providing confidential client voting information. The SEC alleges that the firm had knowledge that the proxy solicitor often entertained firm employees to curry favor. Although the firm had a Code of Ethics which prohibited the disclosure of material nonpublic information, the firm failed to implement procedures by (i) allowing all employees access to the client voting information; (ii) failing to audit employee access; (iii) not training employees about their relationships with proxy solicitors; (iv) failing to require reporting and/or pre-clearance of gifts; and (v) not reviewing e-mails.
OUR TAKE: A firm policy requiring or prohibiting certain actions or behaviors will not suffice. Firms must implement specific policies and procedures to ensure that employees follow those policies. Some best practices are described in this action: e-mail reviews, training, system audits, etc.