The SEC has begun investigating a series of reportedly phony letters cited by the agency's chairman as evidence of retail investor support for reforming the U.S. proxy system's plumbing.
At a Nov. 5 meeting, SEC Chairman Jay Clayton said retail investors including an Army veteran, a retired teacher and a single mom had written to the agency in support of overhauling the processes that govern shareholder and corporate votes at companies' annual meetings. But the letters turned out to be part of a marketing campaign from 60 Plus Association, an advocacy group backed by a number of large corporations who are supportive of the SEC reforms, according to a report from Bloomberg.
Now, the Office of Inspector General at the SEC is looking into the letters, according to Clayton, who was pressed on the issue while testifying Dec. 10 on Capitol Hill.
"You got duped when you rolled out that statement," Sen. Chris Van Hollen, D-Md., said during the hearing. "Mr. Chairman, the letters you cited were orchestrated by a dark-money group that is funded by many of the corporations that stand to benefit from your proposal. You became their mouthpiece. I do think it's important for you to retract those statements."
Clayton declined to offer lawmakers any details about the investigation. However, he noted that the SEC reached out to its general counsel and inspector general "very shortly" after the Bloomberg story was published Nov. 19.
"Let's see what happens with the investigation," Clayton said. "I am very interested in hearing directly from individual investors, in particular, directly. Not filtered by groups."
The SEC is still collecting feedback on the proposals it issued in November. Those reforms, as proposed, would raise the bar that shareholders need to meet in order to submit proposals at a company's annual meeting. The SEC has also floated provisions to require proxy advisory firms contracted by large institutional investors to get company feedback on their recommendations before sharing them with their clients, among other changes.
The proposals have since become a lightning rod of tension for Wall Street and corporate America.
Shareholder-rights advocates have bemoaned the changes, saying they would limit the ability for investors to bring emerging issues to company executives and boards. Business groups and management teams have applauded the efforts, though, with many saying the changes will allow companies to focus on returning capital to their shareholders rather than dealing with proposals that are not immediately relevant to their operations.
Clayton said at the congressional hearing that he still believes the SEC is looking out for retail investors with its proposals. Clayton added that he remains open to discussions on how to reform the SEC's proposed changes.
"When you interact directly with investors, you get a lot of good information," Clayton said. "During this comment period, I encourage as many individual investors as [possible] to share their thoughts with us."