SEC chairman Jay Clayton has faced an extraordinary grilling over the fake investor letters he cited in ‘support’ of the regulator’s proxy advisor rule changes – with a prominent US senator telling him he was “duped”.
Clayton was finally forced to answer questions about his part in the fake letter scandal during his testimony before the Senate Banking Committee about the oversight of the SEC, held on 10 December.
In a blistering showdown, US Senator from Maryland Chris Van Hollen said the shameful incident resulted in Clayton becoming a “mouthpiece” for CEOs and corporates who wished to push through the tough new proxy adviser rules.
Last month, Clayton was exposed for citing a number of fake investor letters that purportedly supported the regulator’s proxy rule amendments.
According to Clayton, the letters were written by ordinary, main street investors, including an army and marine veteran, a retired teacher, a police officer, a single mother, and a retired couple.
However, a Bloomberg investigation discovered the letters were actually penned by an advocacy group called the 60 Plus Association.
Embarrassingly for Clayton, the army and marine veterans turned out to be the brother and cousin of the chairman of 60 Plus, the retired teacher stated she never wrote the letter, while the retired couple were exposed as the in-laws of the group’s president.
It transpired 60 Plus is a member of the Main Street Investors Coalition, which was founded by the National Association of Manufacturers (NAM).
NAM’s members include big oil firms like ExxonMobil and Chevron who are believed to be reluctant about shareholders having a greater voice.
During his attack on Clayton, Van Hollen said the proxy advisory proposals were focussed on strengthening the “already very strong hand of CEOs and corporations at the expense of their shareholders”.
“What troubles me is you tried to present this as a concern of main street investors,” Van Hollen told Clayton. “When you rolled [the proxy adviser rules] out, you attempted to create the impression this was something a lot of main street investors cared about.”
“I can tell you, I sit on the Committee. I’ve served in the House. I’ve been in the Senate. I’ve not had a main street investor ever come up to me and say this [the proxy advisor rules] is a concern of theirs. You got duped when you rolled out that statement.
“It’s important that you retract that statement, to let the public know you were duped. I hope you will make it very clear that this is outrageous,” Van Hollen said.
Describing 60 Plus as a “dark money group” funded by corporations that stand to benefit from the proxy advisor rule amendments, Van Hollen asked Clayton if he was now aware that the letters were fake.
At first, Clayton appeared flummoxed and said he was not familiar with 60 Plus.
Pressed further by the Maryland senator, Clayton – blushing and smiling nervously – said he was only aware the letters were written by relatives of 60 Plus “because you [Van Hollen] had just told me”.
Laughing at his response, Van Hollen then asked the SEC chairman if he was aware the military veterans he cited were the brother and cousin of the head of 60 Plus.
Chuckling awkwardly, Clayton simply replied, “If you say so.”
Appearing increasingly agitated, Van Hollen warned Clayton that if a company had done this, the Senate would “go after them” for deceptive practices.
“I know you didn’t plan on doing that, but you became the vehicle for that as you tried to roll out this provision with the patina that is was looking out for main street investors.
“You should be cautious before saying it’s the top priority of main street investors. This is the top priority of a lot of corporate CEOs who don’t want to be second-guessed by proxy advisors,” Van Hollen said during the heated exchange.
However, Clayton stood firm in his belief that the rule proposals are looking out for main street investors.
“If people can tell me what we’re proposing is too onerous, and that we can improve accuracy another way, I’m open,” Clayton stated.
The regulator’s plethora of restrictive proposals include making proxy advisory firms supply companies with advance copies of their advice before it goes to investors.
Companies would be able to review these documents so they can “identify errors in the proxy voting advice”.Last Updated: 19 December 2019