Four ex-Georgeson LLC employees are now on trial for fraud. Michael Sedlak, Charles Garske, Donna Ackerly, and Richard Gottcent are accused of bribing an Institutional Shareholder Services (ISS) employee for information about the way Georgeson’s investor clients vote on shareholder proposals. Georgeson is a proxy solicitation firm. ISS is registered with the US Securities and Exchange Commission as an investment adviser.
According to prosecutors, the ISS employee, Brian Bennett, was given $14K in bribes in the form of tickets to different events, including a U2 concert and Boston Red Sox baseball game, as well as for meals and an airline ticket. Assistant U.S. Attorney Eric Rosen told a federal jury that the purpose of procuring the information was to obtain an illegal advantage in their work, which involved representing companies when there are shareholder votes. Rosen said that the defendants were “not entitled” to these “secrets” that they purchased.
It is the job of proxy advisory firms to give information and recommendations to institutional investors about proposals that publicly traded company shareholders are expected to vote on. These firms collect information about institutional investors’ holdings and public votes and they share that information with publicly traded companies. This allows proxy solicitors and their clients to assess how certain shareholder votes on proposals will likely go, which can help clients figure out how they might affect certain shareholder votes.
Prosecutors claim that from about ’07 to ’12, Bennett gave Sedlak the information on shareholder votes related to over 100 ISS shareholder advisory clients. The latter then shared the information with the other defendants. Some of these defendants allegedly gave the information to their clients. Garskey and Ackerly are accused of billing the clients for their bribes to Bennett by setting up invoices with bogus descriptions for billing purposes.
The defendants’ attorneys contend that the information Bennett gave their clients was not materially unlike what their employer could have obtained from investors or public records. However, Rosen is arguing that even if what Bennett gave Sedlak was information he could have gotten from the institutional investors, most of them would not likely share such details.
Bennett pleaded guilty to conspiracy to commit wire fraud and honest service wire fraud in 2015. Keith Haynes, another ex-Georgeson employee who is also accused of involvement in the alleged fraud, pleaded guilty to similar criminal charges.
In 2013, ISS paid $300K to settle US Securities and Exchange Commission charges accusing the company of not properly protecting client information, including breaching clients’ confidentiality regarding proxy voting information. Late last year, Georgeson arrived at a deferred prosecution deal to settle related criminal fraud charges and agreed to pay $4.5M.
At the SSEK Partners Group, our institutional investor fraud lawyers are here to help our clients in fighting to recover their investment losses caused by securities fraud. We have experience representing charitable organizations, private foundations, financial firms, banks, retirement plans, large trusts, partnerships, corporations, municipalities, schools, as well as high net worth individuals. Over the years, we have helped thousands of investors to recover their investment losses. Contact our securities law firm today.
Former Proxy Solicitation Firm Employees Face U.S. Fraud Trial, US News & World Report, February 26, 2018
Leading Proxy Solicitation Firm Georgeson LLC Agrees to Pay $4.5 Million to Resolve Fraud Charges, Justice.gov, November 30, 2017
More Blog Posts from SSEK Law Firm:
BitFunder and Its Founder Face Fraud Allegations, Stockbroker Fraud Blog, February 19, 2018
UBS Must Pay Five Clients $521,000 Over Puerto Rico Bond Fraud, Stockbroker Fraud Blog, February 24, 2018
FINRA Orders Citigroup to Pay $11.5M, Including at Least $6M to Investors, Over Inaccurate Stock Research Ratings, Stockbroker Fraud Blog, December 29, 2017
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