SEC falls foul of proxy astroturf

Did the SEC cite fake letters to support its proxy clampdown?

The SEC’s attempts to impose tough new regulations on proxy advisers have taken a sinister turn following revelations its chairman has been citing fake investor letters in ‘support’ of its proposed changes.

The Security and Exchange Commission’s (SEC) chairman, Jay Clayton, has been left red faced after he cited around seven of these dubious letters at a recent Commission meeting in Washington.

According to Clayton, the letters were written by ordinary investors who were thoroughly enthused by the SEC’s proposals to overhaul its proxy adviser rules. The move would seriously limit the ability of shareholders to effectively exercise their stewardship responsibilities.

These ordinary ‘Joanne Bloggs’ investors apparently included an army and marine veteran, a retired teacher, a police officer, a single mother, and a retired couple.

What is Astroturfing? Astroturfing is a PR/propaganda technique used to favorably manipulate public opinion through artificial "grass-roots" support for a specific corporate or political agenda. Astroturf campaigns are funded by special interest groups and typically marked by fake blogs or websites containing "research" by "experts" to discredit legitimate analysis or experts whose views are deemed to be threatening.

As one letter, purportedly written by the retired teacher, Pauline Yees, implores: “I have learned the SEC is considering the regulation of companies that specialize in providing administrative support to corporations and pension funds when getting shareholder approval for investment decisions. I urge the SEC to do so".

“People
who served the public in their working years as teachers, first responders, and
other important functions should be confident that public pension funds adhere
to the judiciary duty to be managed mainly with maximum growth security in
mind. We are depending on that money for our later years.”

Then an impassioned letter from army veteran Ray White writes: “I believe it is an absolute disgrace third parties are making decisions with my money to promote their own personal agenda.  When I first started investing, I believed that making investments in mutual funds meant that my fund advisor was to do his or her best to make the right choices for my financial interest".

“I
am sorry to say I no longer believe that, and it truly saddens me. I urge you
to please do the right thing and uphold the rights of shareholders everywhere.”

However, it transpires these
letters are far from authentic – and raises serious questions over who the SEC
is really looking out for.

According to a Bloomberg
report, the letters were actually penned by an advocacy group called the 60
Plus Association – a group that happens to be funded by big US corporates that
support the SEC’s move to silence dissenting shareholders.

Embarrassingly for Clayton, the army and marine veteran correspondents turned out to be the brother and cousin of the chairman of 60 Plus. The retired teacher stated she never wrote the letter when contacted by Bloomberg, although she said the signature was hers.

And shockingly, the retired couple have
been exposed as the in-laws of the group’s president after data embedded in the
electronically-submitted letters linked the documents back to 60 Plus.

None of these letters identify or
mention 60 Plus, and while some of these ‘ordinary’ investors said they gave permission
for their names and signatures to be used, it appears this only happened after
they were contacted out of the blue by the association.

Others, whose identifies were used, disavowed
the letters altogether, stating they had no knowledge of their existence.

So far, the SEC has declined to comment on any abnormalities with the letters, according to Bloomberg. But the letters cited by Clayton are not the only ones in existence. In total, over 20 letters with ties to 60 Plus have been submitted to SEC claiming to be concerned about the influence proxy adviser firms have on shareholders.

The fact many of the letters contain the
same phrases and tone has to raise a question around Clayton’s judgment.

What makes this event particularly bizarre is that pro-Republican 60 Plus, whose mission statement declares it 'promotes solutions to senior citizen issues', is a member of the infamous Main Street Investors Coalition (MSIC).

Formed
last year, the coalition is notorious for opposing shareholder engagement and
launching attacks on institutional
investors who dare to challenge company boards or put forward shareholder
proposals.

According
to the coalition’s website, the growth of passive investing has led to the
“disenfranchisement of retail investors” who feel they have lost the ability to
voice their views about the companies they own.

Despite claiming to support retail investor participation, MSIC's goal is is to limit the ability of small shareholders to propose their own resolutions at AGMs rather than fixing the actual proxy plumbing which is the real cause of investor disenfranchisement.

As
far as the coalition is concerned, investors should focus on maximising profits
rather than challenge companies over “subjective” matters such as social or
environmental issues – a message that sounds very similar to the ones highlighted
in the letters. 

Despite the retail investor sounding name, the reality is far different. Who helped found and fund MISC? The National Association of Manufacturers (NAM). And who are NAM's members? Exxon Mobil and Chevron, two of America’s biggest fossil fuel producers known for lobbying against greater shareholder autonomy.

While NAM is a main funder of the Main
Street Investor Coalition, the 60 Plus Association also directly receives
monetary ‘contributions’ from coalition members in return for advocating their
causes– a fact 60 Plus’ president Saul Anuzis doesn’t deny.

60 Plus maintains that its funding is predominantly derived from donations from its 5.5 million members. However, analysis points the group has also received donations from the likes of Charles and David Koch of Koch Industries, the giant multinational corporation that produces petroleum, chemicals, and biofuels and has actively lobbied against the federal government's creation of a Green New Deal and continues to oppose the Paris Agreement on climate change.

For Anuzis’ part, he told Bloomberg no names were used in the letters without their permission, but acknowledged his group recruited submitters and provided drafts. NAM denied it funded 60 Plus or directed any advocate efforts on the SEC issue.

Nevertheless, this whole sorry affair highlights the power plays at work that endeavour to limit the shareholder participation.

Whether SEC was aware the letters were suspect or not, it’s a monumental embarrassment for Clayton. One thing is clear – the regulator is continuing to play into the hands of groups that don’t have all shareholder interests or concerns at heart – a threat we shouldn’t be willing to accept.