May 2, 2008

The E-Proxy Experience: Practice Pointers and Pitfalls to Avoid

The interest in our inaugural issue of has been overwhelming. As Yoda would say, investor relationships are very strong in this one.

No doubt that one reason for the interest is the lead article entitled “The E-Proxy Experience: Practice Pointers and Pitfalls to Avoid.” Sign-up for free copies of this new quarterly newsletter and see what you think of the pointers.

Broadridge’s Latest E-Proxy Stats

In our “E-Proxy” Practice Area, we have posted the latest e-proxy statistics from Broadridge. As of March 31st:

– 283 companies have used voluntary e-proxy so far (a big leap from 103 at the end of February – understandable since proxy season is in full swing)

– Size range of companies using e-proxy varies considerably; all shapes and sizes (eg. 25% had less than 10,000 shareholders)

– Bifurcation is being used more as the proxy season progresses (but still not all that much); of all shareholders for the companies using e-proxy, now over 10% received paper initially instead of the “notice only” (up from 5% last month)

– 0.45% of shareholders requested paper after receiving a notice; this average is down from 0.70% at the end of February

– 55% of companies using e-proxy had routine matters on their meeting agenda; another 30% had non-routine matters proposed by management; and 14% had non-routine matters proposed by shareholders. None were contested elections.

– Retail vote goes down dramatically using e-proxy (based on 92 meeting results); number of retail accounts voting drops from 19.0% to 4.5% (over a 75% drop) and number of retail shares voting drops from 31.4% to 13.9% (a 56% drop)

This recent WSJ article entitled “Shareholder Voting Declines as Companies Adopt Web Ballots” muses on various reasons why retail voting has declined when e-proxy is used. I doubt it’s a “temporary phenomenon as shareholders make the adjustment.”

Our May Eminders is Posted!

We have posted the May issue of our complimentary monthly email newsletter. Sign up today to receive it by simply inputting your email address!

“Witches Brew”: SEC Accuses Trader of Rumormongering on Deal

As noted in this NY Times article on Friday (and this Wilson Sonsini memo), the SEC settled a case with a former securities who allegedly spread false rumors to profit from a pending buyout of Alliance Data Systems by the Blackstone Group (the deal tanked later due to other reasons). The SEC said this was its first “rumormongering” case.

According to the NY Times article, the trader allegedly “fabricated a rumor that Alliance Data’s takeover was being renegotiated to $70 a share from $81.75 a share. The trader said that Alliance Data’s board was meeting to discuss the revised proposal. At the time, Alliance Data’s board members were on a plane and could not be reached for comment.” Trading in Alliance Data’s stock was suspended due to heavy volume caused by the rumor, which the trader had sent via instant messages to 31 other traders and other market participants. He was short selling the stock at the time.

Reading the SEC’s complaint, it’s not clear if the trader knew that the board was on a plane and unavailable – my guess is that he didn’t know (and thus was unlucky because if they had been reached and quashed the rumor more quickly, the damages would have been reduced and perhaps this case wouldn’t have been brought or the penalty would be been less than the $130,000 he ended up paying).

In the SEC’s press release, SEC Chairman Cox noted ““The commission will vigorously investigate and prosecute those who manipulate markets with this witch’s brew of damaging rumors and short sales.” It will be interesting to see if the SEC’s Enforcement Division will be bringing more of these cases, particularly due to the heightened interest in hedge funds and their failures to adopt adequate insider trading compliance programs (see Dave’s recent blog on the SEC’s Section 21(a) Report involving the investigation of the Retirement Systems of Alabama).

– Broc Romanek