In November, the SEC voted to propose amendments to add new disclosure and engagement requirements for proxy advisory firms and to “modernize” the shareholder proposal rules by increasing the eligibility and resubmission thresholds. (See this PubCo post and this PubCo post.) At the SEC open meeting, in explaining his perspective on the proposals, SEC Chair Jay Clayton indicated that, following the SEC’s proxy process roundtable (see this PubCo post), the SEC had received hundreds of comment letters, but there were seven letters that were most striking to him. Clayton seemed to be genuinely moved by these letters, ostensibly submitted by various Main Street investors, a group that Clayton considers to be core to the SEC’s protective mission. (See this PubCo post.) But, according to Bloomberg, there was something not quite right—something “fishy”—about those letters. (See this PubCo post.) Now, Bloomberg reports, a Democratic watchdog group is calling for an investigation into the “fishy” letters. And, as reported in this Bloomberg article, Clayton has said that the SEC is investigating.
The seven letters cited by Clayton “came from long-term Main Street investors, including an Army veteran and a Marine veteran, a police officer, a retired teacher, a public servant, a single Mom, a couple of retirees who saved for retirement, all of whom expressed concerns about the current proxy process. A common theme in their letters was the concern that their financial investments—including their retirement funds—were being steered by third parties to promote individual agendas, rather than to further their primary goals of being able to have enough money to lessen the fear of ‘running out’ in retirement or to leave money to their children and grandchildren.”
Bloomberg examined the seven letters to which Clayton alluded, plus others, and found that “they are the product of a misleading—and laughably clumsy—public relations campaign by corporate interests.” Several of the “authors” said that they did not write the letters, and most of them appeared to have been provided by two corporate public relations firms. Moreover, four of the seven letters mentioned by Clayton contained the same unusual error—addressing the letter to the SEC Secretary at “a coalition of growth companies” above the SEC’s mailing address. According to Bloomberg, the same error—an “inadvertent digital fingerprint”—was present in at least 20 of the comment letters submitted, many of which also came from individuals formerly or loosely associated with the advocacy group above. Of course, it’s very common for the SEC to get thousands of form comment letters on both sides of issues; the SEC reported receipt of over 18,000 identical form letters opposed to rule changes. What’s interesting here is that—in addition to having been called out and footnoted by Clayton—these letters are all different and some quite plaintive.
According to Bloomberg, the watchdog group requested that the SEC’s inspector general and the Justice Department examine the role of a conservative advocacy group that Bloomberg suggests may have been behind the letter-writing campaign. The president of the group contended that, “although his group helped draft and submit letters, all of the people whose names were used gave permission, ‘and they will be willing to sign an affidavit to testify as such.’” Some of the those who said they unaware of the letters “may have forgotten.” The president of the watchdog group distinguished this letter-writing campaign from the typical form comment letters as “uniquely troubling” because they appeared to have such a significant impact on the rulemaking proposal. If there were no investigation, it would “invite other organizations to pursue the same misleading and obstructive strategy.”
According to Bloomberg, in response to a question from a Senator, Clayton said that his office contacted the SEC’s general counsel and office of inspector general soon after the Bloomberg article was posted.