Cydney Posner is Special Counsel at Cooley LLP. This post is based on her Cooley memorandum.
A Federal District Court has just held invalid the SEC’s rule regarding proxy advisory firms. The case dates back to 2019(!), when ISS sued the SEC and then-SEC Chair Jay Clayton in connection with the SEC’s interpretive guidance that proxy advisory firms’ vote recommendations were, in the view of the SEC, “solicitations” under the proxy rules and subject to the anti-fraud provisions of Rule 14a-9. (See this PubCo post.) Rules confirming that interpretation were adopted in 2020. In its amended complaint, ISS contended that the interpretation in the release and the subsequent rules were unlawful for a number of reasons, including that the SEC’s determination that providing proxy advice is a “solicitation” is contrary to law, that the SEC failed to comply with the Administrative Procedure Act and that the views expressed in the release were arbitrary and capricious. Now, after 1576 days, the DC District Court has agreed, holding that the “SEC acted contrary to law and in excess of statutory authority when it amended the proxy rules’ definition of ‘solicit’ and ‘solicitation’ to include proxy voting advice for a fee.”