SEC Cracks Down on Invalid Proxy Voting
May 13, 2009 by Lela Davidson
Filed under Finance
The Securities and Exchange Commission on May 8th charged West Palm Beach, Fla.-based INTECH Investment Management LLC and its former chief operating officer David E. Hurley with violating the SEC’s proxy voting rule. According to the SEC, INTECH did not sufficiently describe its proxy voting policies and procedures and failed to address a material potential conflict of interest.
What is the Proxy Voting Rule?
If you have any money invested in the stock market, you get vast amounts of those proxy votes in the mail. Do you vote them? Do you have the time to learn about what you’d be voting on, or do you leave it up to the experts to vote your proxy? Many investors do just that, which is why the SEC has rules about how those proxies are voted.
The proxy voting rule requires registered investment advisers to adopt proxy voting policies and describe them to clients, including procedures to address material conflicts of interest that may arise between the adviser and its clients. The rule is designed to ensure that advisers vote for clients’ best interests, and provide clients with information about how their proxies are voted. This is the first enforcement action taken by the SEC for a proxy voting rule violation.
INTECH Settles
In a settled administrative proceeding against INTECH and Hurley, the SEC’s order found that INTECH exercised voting authority over client securities without including in its policies and procedures how it would address material potential conflicts of interests.
“Investment advisers have enormous voting power, which can significantly affect the future value of corporate securities held by the adviser’s clients,” said Daniel M. Hawke, Director of the SEC’s Philadelphia Regional Office. “With this power comes the duty to cast proxy votes in a manner consistent with the best interests of the adviser’s clients and not to subrogate clients’ interests to its own.”
INTECH and Hurley consented to the issuance of a Commission order without admitting or denying any of the findings. INTECH agreed to pay a penalty of $300,000 and Hurley agreed to pay a $50,000 penalty.
According to the Commission’s order, INTECH managed institutional portfolios for pension plans, foundations, unions, public funds and public corporations. As part of its investment advisory services, INTECH exercised voting authority over many of its clients’ securities or proxies. In connection with the proxy voting rule, which became effective March 10, 2003, INTECH adopted and implemented written proxy voting policies and procedures and provided them to its clients. Hurley reviewed and edited counsel’s drafts of those policies and procedures.
The SEC’s order finds that after receiving complaints from some of its union-affiliated clients about pro-management proxy votes, INTECH selected a third-party proxy voting service provider’s guidelines to vote in accordance with AFL-CIO-based proxy voting recommendations for all clients’ securities. INTECH selected the guidelines that followed the AFL-CIO proxy voting recommendations at a time when it was participating in the annual AFL-CIO Key Votes Survey that ranked investment advisers based on their adherence to the AFL-CIO recommendations on certain votes.
Image Credit: erin MC hammer, Flickr
