DC Circuit Court Decision Limits SEC’s Reach Over Proxy Firms

In early July, the U.S. Court of Appeals for the D.C. Circuit affirmed the lower court’s decision to grant summary judgement to Institutional Shareholder Services (ISS) in a case it brought challenging the Securities and Exchange Commission’s (SEC) expanded definition of solicitation under Section 14(a) of the Securities Exchange Act of 1934 (1934 Act). In 2020, the SEC amended its rules to redefine the terms “solicit” and “soliciting” in such a way that meant that proxy advisory firms had to file their proxy recommendations with the SEC as proxy solicitations, unless the firm met certain criteria. ISS sued the SEC, and the DC Circuit Court found that the SEC’s definitions were inconsistent with Section 14(a) of the 1934 Act. In a client alert, Stradley Ronon noted “the court held that the SEC’s definition was inconsistent with the meaning of “solicit” as Congress would have understood it to mean when adopting the Exchange Act.” It is important to note that while the SEC’s attempt to scope in proxy advisory firms into Section 14(a) failed, congressional republicans remain focused on proxy advisory firms and how they develop recommendations for shareholders.

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