A large proxy advisory firm is being required to pay a $300,000 fine and retain an independent compliance consultant for failure to implement policies and procedures that would prevent employees from disclosing confidential voting information about proxy voting. The SEC claims that an employee received tens of thousands of dollars in tickets and meals for providing confidential client voting information. The SEC alleged that the firm knew that a proxy solicitor entertained firm employees to curry favor but did nothing to understand or prevent this from occurring. Even though the firm had a Code of Ethics which prohibited the disclosure of material nonpublic information, the firm failed to implement procedures and allowed all employees access to the client voting information; failed to audit employee access; did not train employees about their relationships with proxy solicitors; failed to require reporting and/or pre-clearance of gifts and did not review e-mails.
This shows that once again failure to have adequate policies and procedures is never a good excuse for a bad ending. Policies and procedures must be reasonably designed and these obviously were not according to the SEC. To read the full SEC case, please click here.