Five Current and Former Employees of Leading Proxy Solicitation Firm Charged with Conspiring to Obtain Confidential Shareholder Voting Information
BOSTON – Five current and former employees of one of the nation’s leading proxy solicitation firms were charged today with conspiring to bribe an employee of a prominent proxy advisory firm to obtain confidential information about how the advisory firm’s clients had voted on numerous shareholder proposals.
Donna M. Ackerly, 58, of Hopewell, N.J.; Charles W. Garske, 51, of Wayne, N.J.; Richard J. Gottcent, 59, of Islip Terrance, N.Y.; Keith Haynes, 53, of New York, N.Y.; and Michael Sedlak, 49, of Allentown, Pa., were charged in a criminal complaint with one count of conspiracy to commit wire fraud and honest services wire fraud. Ackerly, Gottcent, Haynes and Sedlak were arrested this morning and will have their initial court appearances today in New Jersey, New York and Pennsylvania. Garske is expected to have his initial court appearance later this week. The defendants are scheduled to appear in U.S. District Court in Boston before Magistrate Judge Marianne B. Bowler on Aug. 4, 2016.
It is alleged that from September 2007 to March 2012, the defendants conspired to provide tickets to concerts and sporting events to Brian M. Bennett, formerly known as Brian Zentmyer, an employee of one of the country’s leading proxy advisory firms, in order to obtain information about whether and how the proxy advisory firm’s clients had voted on particular shareholder proposals. The defendants are also charged with conspiring to defraud clients of their own employer by billing them for at least a portion of the cost of the bribes provided to Bennett, while falsely describing those charges as legitimate expenses.
Bennett, currently of Mount Pleasant, S.C., pleaded guilty in July 2015 to one count of conspiracy to commit wire fraud and honest services wire fraud.
"These defendants are charged with conspiring to use bribes to obtain confidential information to gain an unfair business edge over their law-abiding competitors," said Harold H. Shaw, Special Agent in Charge of the Federal Bureau of Investigation, Boston Field Division. "This investigation is another example of the FBI’s commitment to ensuring that nonpublic business information is properly safeguarded, and not misused by individuals and third parties for their own improper advantage."
Proxy advisory firms provide institutional investors with research, analysis and recommendations concerning proposals subject to vote by shareholders in publicly traded companies. The firms may also engage in ancillary businesses, such as helping clients cast their votes, also known as proxy ballots or proxies. Proxy solicitation firms, in turn, assist publicly traded companies in matters requiring shareholder approval by attempting to gather information about institutional investors’ holdings and the direction of their proxy votes. This information can help proxy solicitors and their clients determine whether particular shareholder proposals are likely to pass or fail and can thus help to shape their strategies for affecting the outcome of shareholder votes.
In the course of his work for the proxy advisory firm, Bennett had access to non-public information concerning the firm’s clients, including information about how many shares the clients held in particular publicly traded companies, whether the clients had voted on particular shareholder proposals, and if so, how they had voted. Such information is typically confidential, and the proxy advisory firm’s contracts with its clients required that the firm not disclose this type of confidential information to third parties. In addition, Bennett was subject to the proxy advisory firm’s code of conduct, which prohibited employees from accessing confidential information about the firm’s clients unless necessary to perform their jobs, providing confidential client information to third parties, and accepting gifts “designed to induce an employee to act in a manner inconsistent with the best interests” of the firm.
According to the complaint affidavit, between September 2007 and March 2012, Sedlak requested that Bennett provide him with non-public information about how the proxy advisory firm’s clients had voted on numerous shareholder proposals. In response to Sedlak’s requests, Bennett allegedly accessed the proxy advisory firm’s computer systems, often after-hours, to obtain the confidential, client-specific information Sedlak sought. Bennett then provided that information to Sedlak. Sedlak forwarded the confidential information to other employees of the proxy solicitation firm, including Ackerly, Garske, Gottcent and Haynes. Ackerly, Garske and Haynes then allegedly provided it to the proxy solicitation firm’s clients.
In exchange for the confidential information Bennett provided, it is alleged that Sedlak gave Bennett tickets to concerts and sporting events in Massachusetts and elsewhere, accounting for the tickets in expense reports he then submitted to Gottcent and others, who allegedly approved them. In several instances, Sedlak allegedly sought and received permission from Ackerly, Garske and Haynes to bill at least a portion of the cost of the tickets to clients of the proxy solicitation firm. In those instances, Ackerly, Garske and Haynes are alleged to have provided Sedlak with the names of clients to bill, and to have instructed the firm’s billing department to falsely describe those charges in client invoices as “courier services” or other legitimate-sounding expenses.
The charging document alleges specific examples of confidential information Sedlak obtained from Bennett, and the gifts Sedlak allegedly provided in exchange.
The charging statute provides for a sentence of no greater than five years in prison, three years of supervised release and a fine of $250,000 or twice the gross gain or loss, whichever is greater. Actual sentences for federal crimes are typically less than the maximum penalties. Sentences are imposed by a federal district court judge based upon the U.S. Sentencing Guidelines and other statutory factors.
United States Attorney Carmen M. Ortiz and Harold H. Shaw, Special Agent in Charge of the Federal Bureau of Investigation, Boston Field Division, made the accouncement today. The United States Attorney’s Office has also received valuable assistance from the Securities & Exchange Commission. The case is being prosecuted by Assistant U.S. Attorneys Sarah E. Walters and Stephen E. Frank, Chief and Deputy Chief, respectively, of Ortiz’s Economic Crimes Unit.