SEC Sues Proxy Advisory Giant ISS to Enforce Subpoena for Voting Records

The Securities and Exchange Commission has initiated legal action against Institutional Shareholder Services, attempting to compel the proxy advisory firm to surrender internal records regarding its voting recommendations and shareholder advisory operations. The lawsuit was filed in federal court as regulatory scrutiny intensifies over firms that influence major institutional voting decisions across public corporations.

According to a court filing submitted Friday in the U.S. District Court for the Eastern District of Pennsylvania and first reported by CNBC Business, the regulatory agency filed a subpoena-enforcement petition after ISS refused to fully honor an administrative request for information. The SEC is asking the court to mandate that the firm comply with the outstanding investigative demands.

The dispute originated earlier this year when the SEC's Division of Examinations began evaluating ISS in March, requesting detailed data concerning the company's recommendation guidelines and voting records. Following incomplete responses from ISS, the agency's enforcement division launched a formal inquiry and subsequently served an administrative subpoena on July 21.

Federal regulators stated that ISS has persistently withheld key documents despite receiving extended deadlines and participating in multiple discussions aimed at settling the disclosure disagreement. The SEC emphasized that its probe remains in the fact-finding phase and noted that it has not reached any determination regarding whether ISS committed violations of federal securities regulations.

In prior communications with regulatory officials, ISS raised constitutional objections to the demands, arguing that the subpoena imposes First Amendment concerns. The proxy adviser further contended that releasing the requested records could subject both the firm and its institutional clients to potential retaliation based on their proxy voting records.

ISS, which operates as a registered investment adviser with the agency, did not immediately provide comment on the legal proceeding when contacted by CNBC Business.

The enforcement action develops against the backdrop of a broader push by the Trump administration to increase federal oversight of the proxy advisory sector. Proxy research firms play a pivotal role in public corporate governance, supplying pension funds and asset managers with analytical research and recommendations for shareholder votes on corporate director elections, executive remuneration packages, and governance proposals.

Regulatory attention on the industry expanded following an executive order signed by President Donald Trump in December. The directive instructed the SEC to re-examine existing regulations and guidance governing proxy advisers, enforce anti-fraud provisions under federal securities laws, and evaluate potential new disclosure rules and compliance obligations for the sector.

That presidential order explicitly highlighted ISS along with its primary competitor, Glass Lewis, noting White House estimates that the two entities jointly command more than 90 percent of the domestic proxy-advisory market.