SEC Sues ISS to Open Named Client Voting Files

The Securities and Exchange Commission asked a Philadelphia federal court on September 4, 2026, to force Institutional Shareholder Services to identify how it voted for each client. The subpoena enforcement action on September 4 does not accuse the Rockville, Maryland, firm of fraud.

It asks a judge to open named vote files held in ISS’s ProxyExchange system. ISS says those files are speech, and that naming clients could bring retaliation. The parties with the most at stake are the mutual funds, pension plans, banks, and other advisers whose ballots run through that system.

The Records Sitting Inside ProxyExchange

ISS is a Delaware company and a registered investment adviser. It has been on the Commission’s adviser rolls since 1997. In its memorandum, the SEC says ISS advises clients on board elections, pay, and shareholder proposals, then helps execute those votes.

The request at issue, the agency wrote, calls for information from ISS’s database on voting recommendations to clients and the votes entered for those clients. Staff in the Division of Examinations opened a review in March 2026 and asked for that data, which the litigation release calls the core of ISS’s business. After ISS did not produce all of it, Enforcement staff in the Philadelphia Regional Office opened an inquiry on July 6. The Commission issued a formal order on July 20 and served a subpoena on July 21.

ISS Governance clients can follow one of three recommendation tracks, the memo says, citing the firm’s March 31, 2026, Form ADV brochure:

ISS VOTING POLICY TRACKS

• Benchmark: ISS writes the policy from its own analysis, then discloses it publicly.
• Specialty: Thematic public policies built around views such as sustainability, climate, or Catholic faith-based screens.
• Custom: Client-built rules that reflect in-house voting approaches and are not publicly disclosed.

ProxyExchange is the web tool ISS uses to deliver that advice. ISS has described it as providing clients with end-to-end management of their proxy voting process. Through it, the firm sends recommendations and records the votes that follow. An ISS brochure for 2025 said Governance Solutions helped about 1,400 clients on about 52,000 shareholder meetings. The wider ISS STOXX group, in a November 2025 release, put its headcount at more than 3,800 people and its client count at about 5,500.

Why the SEC Says It Needs Each Client’s Votes

The Commission’s theory is narrow and client-specific. It says it cannot test whether ISS met its duty of care and loyalty unless it can match a recommendation to a named account and see the ballot that followed. Client files, the memo argues, are also needed to check recordkeeping and to see whether votes followed each client’s instructions and profile.

The Commission cannot assess whether ISS is acting in a particular client’s best interests because ISS refuses to identify how it voted for each client.

U.S. Securities and Exchange Commission, memorandum of law, Eastern District of Pennsylvania

ISS first called a full pull too heavy and offered three sample reports. Examiners agreed to look at those samples. Later, ISS said it should not have to “create” documents. By late summer it had a different proposal: hire an expert to strip names so thoroughly that even a “downstream” client of an ISS client could not be spotted, then hand over reformulated ProxyExchange data. It gave no timetable. When staff asked for the same three samples in that stripped format, ISS said it would not produce even those.

On August 24, ISS set out what it called principal objections. It said clients could suffer competitive harm from disclosure. It tied the subpoena, especially the client-vote request, to Executive Order 14366 and called the demand an unlawful effort to punish protected speech. It also said revealing ProxyExchange data might burden freedom of association, because clients could choose not to associate with ISS if the Commission saw their votes.

ISS told reporters the demand raises serious First Amendment concerns. The firm said it was committed to working with the SEC, that clients share the information with an expectation it will not be shared, and that complying would expose ISS and its clients to potential retaliation for protected speech and voting decisions on matters of public importance.

SEC lawyers answered on September 1 and offered a compromise. ISS rejected it on September 3. The application was filed the next day as case 2:26-mc-00078. Litigation Release No. 26632 went out with it. The agency says the demand is limited to a reasonable period of four years, that ISS later dropped the burden argument, and that full anonymizing would be heavier than producing the database records. Anonymized files, the memo says, cannot be reconciled against client vote-authorization agreements.

Implied Consent Lets ISS Cast the Ballot

The files are not only research notes. ISS uses vote authorization registration agreements to set when and how it will execute proxies. The SEC memo describes two execution choices: Implied Consent and Mandatory Signoff.

Under Implied Consent, ISS agrees to execute votes in line with its recommendations to that client, without a further step by the client. The client can still override. If it does not, the recommendation becomes the ballot. Mandatory Signoff keeps a human check in the path before the vote is sent.

That split is why named files matter to people who never appear in the caption. A pension or mutual fund that picked Implied Consent has, by contract, let ISS vote unless someone stops it. A Custom-policy client has asked ISS to apply rules the public never sees. Specialty-policy clients have asked for climate, faith, or sustainability screens. The SEC says it wants to know whether the vote that went out matched the instructions. ISS says handing over those names would show the government, and potentially others, how those institutions voted on live corporate fights.

The black box, in other words, is not only ISS’s model. It is a map of who voted which way, including accounts that outsourced the click. Opening it would show the Commission the clients. It would also show, in the same rows, whether ISS’s advice and ISS’s execution lined up.

Full Deutsche Börse Ownership, Closed in March

The SEC memo calls ISS a wholly owned subsidiary of Deutsche Börse AG, the German exchange operator. That status is new in its final form. On February 11, 2026, Deutsche Börse said it had agreed to buy General Atlantic’s remaining 20 percent stake for €1.1 billion in ISS STOXX, the parent group, in two tranches, with the first tranche €731 million due that February. The Form ADV brochure attached to the SEC filing is dated March 31, 2026, the day Deutsche Börse said it completed the buyout and became sole owner.

Gary Retelny, president and chief executive of ISS STOXX, said at the February announcement that the firm’s commitment was unchanged and that it would keep giving clients objective data and solutions. The White House order in December had already labeled ISS foreign-owned. Full German ownership closed while the exam was underway.

ISS has used its SEC registration in other courts as proof that federal adviser rules already govern it. The Philadelphia memo cites ISS’s complaint in Institutional Shareholder Services, Inc. v. Paxton, a Western District of Texas case, for the point that ISS admits it is subject to Commission oversight. The same registration is the hook for this subpoena. A registered adviser keeps books the SEC is allowed to inspect. ISS’s reply is that this inspection, in this climate, is not a routine exam.

What the December Order Told the SEC to Do

President Donald Trump signed Executive Order 14366 on December 11, 2025. The order says ISS and Glass, Lewis & Co. control more than 90 percent of the proxy advisor market and advise clients on how to vote shares held for millions of Americans in mutual funds and exchange-traded funds. It says those clients often follow the advice, and that the two firms have used that reach to push diversity and environmental agendas the White House wants out of the voting file.

Section 2 tells the SEC chairman, Paul S. Atkins, to review proxy-adviser rules and Rule 14a-8 on shareholder proposals, then consider revisions. It also tells him to enforce antifraud rules against material misstatements in voting recommendations, to consider adviser registration for proxy firms, to consider more disclosure of methods and conflicts, to study whether a proxy adviser can become a vehicle for a 13(d) group, and to have staff examine whether following non-pecuniary factors breaches an adviser’s duties. Separate sections point the Federal Trade Commission and the Labor Department at the same industry.

ISS is in the Philadelphia caption. Glass Lewis is not. The order named both. Only ISS, among the two, has been a registered investment adviser for decades, which is the jurisdictional fact the SEC leans on.

THE TWO FIRMS NAMED IN THE ORDER

Atkins, speaking on July 9, 2026, to the Society for Corporate Governance, said adverse proxy-adviser recommendations tied to companies’ exclusion of shareholder proposals were rare this season. That remark was about Rule 14a-8 practice, not about this exam. It shows the Commission’s chair was already talking about proxy firms while Examinations was asking ISS for the vote tape.

The Justice Department Withdraws a 1987 Letter

A month before the Philadelphia filing, the Antitrust Division withdrew a 1987 business review letter that had been issued to ISS. The August 5, 2026, statement said the old letter assumed ISS would advise only on voting rights and would not discuss corporate operations. ISS now sells corporate consulting beside its vote work, the Division said, and that model conflicts with the 1987 understanding.

The Division repeated the same market line as the White House: ISS and Glass Lewis control more than 90 percent of the proxy advisory market, and their clients hold large stakes in the biggest U.S. public companies. It said concentration raises competition concerns. It also said proxy advising is not inherently a violation, and that voting on a recommendation, standing alone, does not raise antitrust issues. The withdrawal took effect immediately. It named no charges and offered no remedy. Glass Lewis was not the subject of the withdrawal.

Taken with the SEC exam, the letter’s removal is the other Washington file that now sits on ISS’s consulting-plus-voting model. The Philadelphia case still asks only for records. The Justice Department file asks whether a 39-year-old comfort letter still fits a firm that advises companies as well as their shareholders.

Fact-Finding in the Eastern District of Pennsylvania

John V. Donnelly III and Gregory Bockin of the Philadelphia Regional Office signed the memorandum. The SEC says more than four months have passed since the original exam request, that deadlines were extended, and that ISS has still refused to produce all requested materials. It also says the investigation remains in the fact-finding stage and that it has not concluded ISS violated federal securities laws.

The memo walks through prior exams that began in March 2006, February 2012, July 2015, and July 2022. Excluding the live March 2026 review, it says the Commission found Advisers Act deficiencies in each of those completed exams. It does not spell out those older findings in the application, and it does not treat them as the charge now before the court.

THE PATH TO THE PHILADELPHIA FILING

1. March 2026: Division of Examinations opens a review of ISS and asks for proxy recommendation and vote data.
2. July 6, 2026: Enforcement staff in Philadelphia open an inquiry into the missing production.
3. July 20-21, 2026: The Commission issues a formal order, then serves the investigative subpoena.
4. August 24, 2026: ISS sends its First Amendment and association objections and again proposes anonymizing the files.
5. September 1-3, 2026: The SEC offers a compromise; ISS rejects it.
6. September 4, 2026: The SEC files in the Eastern District of Pennsylvania for an order to compel.

What the court is being asked to do is compel production, not find a voting-advice fraud. If the judge grants the application, the named rows in ProxyExchange, including Implied Consent accounts, move from ISS’s servers to the Commission’s exam file. If the judge does not, the fiduciary review the SEC says it cannot finish stays stuck on the same missing field: how it voted for each client.

The funds and pensions in those rows did not file an appearance. Their ballots are the inventory the two sides are fighting to open or to keep sealed.

Disclaimer: This article is news reporting on a live civil filing and related agency papers. It is informational only and is not legal, investment, or voting advice. It does not tell any issuer, fund, pension, or adviser how to respond to the SEC, how to vote shares, or how to treat ISS or Glass Lewis recommendations. Readers who need advice on securities-law duties, subpoena compliance, or proxy voting should consult a qualified securities lawyer or fiduciary adviser before acting. Case status, production obligations, and ownership facts reflect the cited agency and company papers as of the dates on those papers and may change if the court rules or if the Commission amends its investigation.