The Securities and Exchange Commission (the “Commission”) has charged a registered investment adviser and its former chief operating officer with violating the investment adviser proxy voting rule—Rule 206(4)-6 (the “Proxy Voting Rule”) under the Investment Advisers Act of 1940 (“Advisers Act”). Rule 206(4)–6 generally makes it a fraudulent, deceptive or manipulative practice, within the meaning of Section 206(4) of the Advisers Act, for an investment adviser to exercise voting authority with respect to client securities unless the adviser has policies and procedures that are reasonably designed to ensure that securities are voted in the best interest of clients and addresses material conflicts of interest between the adviser’s interest and those of its clients.1 In a settled administrative proceeding,2 the Commission found that INTECH Investment Management LLC (“INTECH”) violated the Proxy Voting Rule because its policies and procedures did not include how the adviser would address material conflicts of interest that may arise between its interests and those of its clients, and did not sufficiently describe its proxy voting policies and procedures to clients.3
INTECH manages portfolios for institutional clients, including both union and non-union-affiliated clients, such as foundations, public funds and corporations. Under its proxy voting procedures, it voted all proxies in accordance with the recommendations of a third-party proxy voting service. Initially, it followed guidelines of a third-party proxy voting service generally consistent with those supported by public company management. However, in response to complaints from some of its union-affiliated clients, INTECH began to vote all proxies in accordance with a different set of guidelines provided by the third-party service, which guidelines were supported by the AFL-CIO union (the “AFLCIO Guidelines”). INTECH believed that by following the AFLCIO Guidelines on proxy voting, it would improve its ability to maintain existing, and to attract new, union-affiliated clients. The Commission found that INTECH’s proxy voting policies and procedures did not address the potential conflict caused by implementation of the AFL-CIO Guidelines for all of its clients (i.e., non-union clients) and that INTECH did not disclose to clients that the proxy voting guidelines it was using followed the AFL-CIO Guidelines.
Under the terms of the Commission’s order, INTECH, and its former chief operating officer were required to pay civil money penalties, were censured and were required to cease and desist from committing or causing any violations of the Proxy Voting Rule. The full text of the Release is available at http://www.sec.gov/litigation/admin/2009/ia-2872.pdf.