SEC Chairman Jay Clayton said Tuesday the agency is investigating suspicious comment letters it received in support of proxy rule changes that the commission proposed last month over the objections of investor advocates.
“We’re having an investigation done of this issue, so I’m just going to leave the specifics of that,” Clayton said in response to a question from Sen. Tina Smith (D-Minn.) at a Senate Banking Committee oversight hearing.
“I am very interested in hearing directly from individual investors — in particular directly — not filtered, by groups,” Clayton added.
His announcement comes after two public interest groups sent multiple letters on Monday calling on agencies to investigate why Clayton referred specifically to the letters at the beginning of a Nov. 5 meeting called to consider the proposal, citing them to show that ordinary investors backed the changes.
A Bloomberg report revealed that some of those letters were signed by people who didn’t recall writing them. Several others were signed by relatives of a lobbyist for 60 Plus, an affiliate of the Main Street Investors Coalition, which is funded in part by the National Association of Manufacturers, according to the report.
Many companies favor the new rules since they rein in the power of proxy advisers, which make recommendations to shareholders on controversial proposals such as on climate change and corporate governance issues.
“I’m certainly glad to know that you’re investigating this, I think that that’s really important. And if you’re basing decisions about what to do on comments and public interactions that end up to be fueled by corporate advocacy groups, that I think is a problem,” Smith said.
Clayton came under withering criticism from Sen. Chris Van Hollen (D-Md.), who said the letter writers supporting the proxy changes had used him as a “vehicle” to deceive the public.
“I did not have a mainstream investor ever come to me and say that this is a concern of theirs,” Van Hollen said. “Now, if there are I look forward to it. But you got duped when you rolled out that statement.”
“I hope you will make it very clear that you find it outrageous that the people who hope you’re going to do this … you became the vehicle for their fraudulent attempts to make it sound like it was all about main street investors,” Van Hollen said.
“Regardless of this colloquy, I still believe we’re looking out for main street investors,” Clayton said in response to Van Hollen.
Clayton said he is “open for discussion” on the rules. “If people think what we are proposing is too onerous … I’m open,” he said.
Still, he wouldn’t commit to delaying the rules in any way related to the outcome of a lawsuit filed against the new rules by Institutional Shareholder Services, one of two firms that dominate the proxy advisory business.
In describing how the investigation came about, Clayton told Smith: “Very shortly after the Bloomberg article came out, we contacted our general counsel and the Office of Inspector General.”
But he didn’t directly answer another question from Smith as to whether the types of letters subject to the SEC investigation should be illegal.
“The comment process is an open process, to the extent things happen, I don’t think that — well, I’m just going to leave it at that for now, let’s see what happens with the investigation,” Clayton said.