Former Employee of Leading Proxy Advisory Firm Pleads Guilty in Conspiracy to Provide Confidential Shareholder Voting Information
BOSTON – A former employee of one of the country’s leading proxy advisory firms pleaded guilty today in U.S. District Court in Boston to conspiring over a six-year period to provide confidential information about how the firm’s clients had voted on numerous shareholder proposals to a leading proxy solicitation firm.
Brian M. Bennett, 42, of Mount Pleasant, S.C., pleaded guilty to an Information charging him with one count of conspiracy to commit wire fraud and honest services wire fraud. U.S. District Court Judge Denise J. Casper scheduled sentencing for January 13, 2016.
“Individuals who sell the confidences of their employers and clients are committing a crime,” said United States Attorney Carmen M. Ortiz. “The law leaves no room for such betrayals, whether they are in service of a scheme to commit insider trading, to steal intellectual property or, as in today’s case, to provide an unfair advantage in the battle for proxy votes.”
U.S. Attorney Ortiz noted that the government’s investigation is continuing, adding: “Those who would pay such bribes should also take heed: you are no less culpable than the purveyors of the information you are buying. We will use the full arsenal of law enforcement tools available to us to shut down the black market for nonpublic corporate information, and to prosecute those who participate in it.”
Vincent B. Lisi, Special Agent in Charge of the Federal Bureau of Investigation, Boston Field Division, said “Mr. Bennett is now facing the consequences for giving away confidential client information in exchange for tickets to high-priced events. The FBI hopes this case sends a strong warning to those individuals and companies who are also buying inside knowledge. They are just as responsible as those selling it and the FBI will use every resource we have to shut them down.”
According to court documents, from 1998 to 2012, Bennett, who was formerly known as Brian M. Zentmyer, worked at one of the leading proxy advisory firms in the United States, including for two years, at the firm’s Boston office. 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.
Bennett, in the course of his work for the proxy advisory firm, had access to confidential 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. Bennett was subject to the proxy advisory firm’s code of conduct, which prohibited employees from providing confidential client information to third parties, and accepting gifts.
Between 2008 and 2012, Bennett conspired with an employee of a proxy solicitation firm to provide confidential information about how the proxy advisory firm’s clients had voted on numerous shareholder proposals in return for gifts to Bennett from the proxy solicitation firm. The gifts included tickets worth thousands of dollars to concerts and sporting events.
According to court documents, for example, in February 2008 – one week before the annual shareholder meeting of a California-based semiconductor manufacturer – when the employee of the proxy solicitation firm emailed Bennett inquiring about a pending vote on a proposed performance incentive plan for the California company’s directors and key employees. Bennett responded by providing information about 13 of the company’s institutional shareholders, who were clients of the proxy advisory firm, including how many shares of the company they owned, whether they had voted on the proposed performance incentive plan, and if so, how they had voted. One week later – on the day of the shareholder vote – the proxy solicitation firm employee sent an email to Bennett, inquiring: “I just love asking questions like this: opening day – 3/30 – 2 or 4 tickets?” Bennett responded: “2 tickets is good….” Thereafter, Bennett attended the opening day game between the Atlanta Braves and the Washington Nationals, at Nationals Park in Washington, D.C., using tickets paid for by the proxy solicitation firm.
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 from the offense. 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.
U.S. Attorney Ortiz and FBI SAC Lisi made the announcement 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.