In an 8-K filing with the SEC this week, MSCI Inc. disclosed that a whistleblower complaint against a subsidiary, the proxy advisory service Institutional Shareholder Services, has led to a Wells Notice being issued, in advance of a public administrative proceeding, by the Securities and Exchange Commission's Division of Enforcement.

On Feb. 13, 2012, the company disclosed that it was contacted by a reporter concerning allegations that an ISS employee provided proxy voting information to proxy solicitors in return for cash and other gifts. An internal investigation was launched and the suspected employee was placed on administrative leave.

In March, the company learned from that employee (who was subsequently fired) that he had provided information regarding how certain clients voted their proxies to a proxy solicitor over a number of years in violation of ISS's policies concerning the treatment of confidential information. It also confirmed that the proxy solicitor provided him with meals and tickets to various events and voting information was shared via e-mail and with phone calls. The employee said he was acting alone in gathering and communicating the information.

According to the latest disclosure on Oct. 2, ISS reported that it had received a Wells Notice from the SEC over potential violations of the Investment Advisers Act back in September.

“We understand the basis of this action would be that while ISS did have in place policies and procedures restricting and safeguarding client voting information generally, [it] did not have policies and procedures specifically addressing communications with proxy solicitors,” the company wrote in the 8-K filing. “Additionally, ISS's systems allowed the employee to view voting information pertaining to any of its clients, as opposed to solely those clients assigned to the employee as a client account manager.”

An additional basis for the SEC's action, according to the company, would be that ISS did not adequately train and supervise its employees relating to meals and entertainment provided by proxy solicitors, even though such a policy was in place.

The disclosure says that ISS has implemented a new policy specifically addressing communications and contacts with proxy solicitors. It also enhanced internal systems to further restrict internal access to client voting information and has conducted further training regarding its gifts and entertainment policy. “The confidentiality of client information is essential to ISS's business, and we will continue to reinforce in our policies and procedures and in our training of our employees the paramount importance of safeguarding this information,” the company wrote.