I.S.S. Settles Investigation Into Leaks of Shareholder Vote Data

Institutional Shareholder Services, the biggest firm in the business of advising shareholders on corporate elections, agreed on Thursday to settle civil charges by the government that it failed to prevent an employee from improperly selling confidential investor vote data.

The firm agreed to pay $300,000 to settle and to retain an independent compliance consultant to monitor its practices, according to the Securities and Exchange Commission, which ran the investigation.

The settlement ends an unusual inquiry into I.S.S., the biggest company in the proxy advisory industry and an influential voice in deciding how investors should vote on matters like mergers or director elections. Many of the firm’s clients are mutual funds, pension funds and other large investors.

But the S.E.C.’s case revolved around a smaller arm of the firm, which allows shareholders to vote directly on corporate matters. According to an order by the S.E.C., an employee of the proxy advisory firm sold confidential information from that unit about how more than 100 of I.S.S.’s clients voted from 2007 to early last year.

The S.E.C. wrote that the employee provided the information to an unnamed proxy solicitation firm, which is hired by a company or investor to estimate how a vote is proceeding and to try to sway shareholders into supporting a matter. The unnamed employee logged into the firm’s system from home and passed along the data using a personal e-mail account.

In exchange for providing the information, the S.E.C. contended, the employee, received meals, $11,500 worth of tickets to concerts and sports games and an airline ticket. The employee no longer works at the firm.

The scheme first came to light last year when MSCI, the parent company of I.S.S., disclosed an internal investigation into the matter. By that point, the S.E.C. had received a whistle-blower complaint alleging that an employee had furnished the confidential vote data to proxy solicitor firms.

“Proxy advisers must tailor their controls based on the risks of their particular business in order to protect the integrity of the proxy voting process,” Julie M. Riewe, a senior S.E.C. enforcement official, said in a statement. “The internal controls at I.S.S. did not adequately address the potential misuse of confidential proxy voting information by firm employees.”

An I.S.S. spokeswoman wrote in an e-mailed statement on Thursday that the firm “took swift action of its own and also fully cooperated with the S.E.C. to investigate and promptly resolve this matter. The confidentiality of our clients’ information is essential and is of the highest priority to us at I.S.S. We now consider this matter closed.”