The US Securities and Exchange Commission (SEC) has sued Institutional Shareholder Services (ISS), seeking a court order to compel the influential proxy adviser to provide information requested as part of a regulatory investigation.
The SEC filed the subpoena-enforcement lawsuit on Friday at the US District Court for the Eastern District of Pennsylvania, accusing ISS of failing to fully comply with an administrative subpoena concerning its proxy recommendations and shareholder voting activities.
The agency said its Division of Examinations began reviewing ISS in March and requested data concerning the firm’s recommendations and voting activity.
After ISS failed to provide all the requested information, the SEC’s enforcement division opened an inquiry and issued a subpoena on July 21.
The regulator said ISS continued to withhold some records despite extensions to the deadlines and repeated attempts to resolve the dispute.
The SEC stressed that its investigation remains at the fact-finding stage and that it has not determined that ISS violated any federal securities laws.
In correspondence with the SEC, ISS argued that the subpoena raised First Amendment concerns and could potentially expose the company and its clients to retaliation over their voting activities.
The lawsuit comes as the Trump administration increases scrutiny of proxy advisers, which provide institutional investors with research and recommendations on shareholder votes.
Their guidance can influence decisions on issues such as board elections, executive compensation and shareholder proposals.
President Donald Trump signed an executive order in December directing the SEC to review its rules and guidance governing proxy advisers. The order also instructed the agency to enforce securities-law antifraud provisions and consider additional disclosure and regulatory requirements.
The order specifically mentioned ISS and rival firm Glass Lewis, with the White House stating that the two companies together control more than 90% of the proxy-advisory market.
ISS is registered with the SEC as an investment adviser.
The SEC is asking the court to order ISS to comply with the outstanding subpoena and provide the information sought by the regulator.
