Hide and Seek
The agency said on Oct. 7 it conducted a review and found a glitch that dates from June 2021 prevented it from seeing comments on a dozen commission rulemaking initiatives, as well as eight items proposed by stock exchanges, the Financial Industry Regulatory Authority and Options Clearing Corp. The matters included the SEC’s climate disclosure and cybersecurity proposals, among other items.
The SEC gave the public until Nov. 1 to send in any feedback that was missing from agency’s online comment files on the rulemaking matters.
The new proxy firm rules were among more than a dozen regulations the SEC proposed since June 2021 and had comment periods that stayed closed.
The SEC proposed the updated proxy firm regulations in November 2021 and adopted them in July. The rules drew dozens of comments, including from the Chamber and the National Association of Manufacturers, which also sued the agency over regulations it said were unwarranted.
The agency wouldn’t hide a tech problem with the rules if it encountered an issue, said Elisse Walter, a Democrat who chaired the SEC during the Obama administration.
“It would be out of the question,” Walter said.
The Chamber’s request for more information about the glitch, made through the Freedom of Information Act on Oct. 24, is part of a years-long battle between businesses and proxy firms over the voting advice given to pension funds and other large investors. The proxy firms’ clients often listen to their recommendations, giving them great power in votes on directors and environmental, social, and governance issues, among other matters.
The SEC under Trump appointee Jay Clayton in 2020 issued rules that required proxy firms to give their voting guidance to companies and investors at the same time. The regulations also directed proxy firms to give shareholders access to information about what companies said about the voting advice.
The decision by Biden appointee Gary Gensler to drop the requirements two years later led to the related lawsuits from the Chamber and the National Association of Manufacturers. ISS also is challenging the SEC in court over the rules, saying they improperly kept it in a more restrictive regulatory regime for shareholder activists.
The Chamber in its FOIA letter asked the SEC for “expedited processing” of its request for any records on the glitch, as the group’s court case continues to move ahead. The group also wrote directly to Gensler on Nov. 1, asking for more details about any connection between tech error and the new proxy firm rules.
The agency would have committed “regulatory malpractice” if it knew the glitch affected comments about the regulations and it made no public amends, Quaadman told Bloomberg Law.
“What information did they get? When did they get it? Were they able to take that into consideration?” Quaadman said. “That’s all very foggy right now.”