Today Parish & Company formally requested the SEC to suspend RiskMetrics IPO due to inadequate disclosure regarding both RiskMetrics and ISS ownership structure. Such disclosure is the heart of proxy rule regulations given proxy firms unique role in the marketplace.
In order to remedy this, RiskMetrics needs to file an ADV with the SEC and fully disclose its ownership structure and other key aspects covered in this standard ADV disclosure. Stating that it is owned by hedge funds or private equity firms is not adequate unless these firms in turn file separate ADV’s with the commission.
Both Gretchen Morgenson and Floyd Norris of the New York Times are copied on the following correspondence to the commission. More details are available on my blog at billparish.wordpress.com including October 10, 2007 blog post titled “Hedge funds Secret Sauce Going Public via RiskMetrics IPO.”
October 2, 2007
Dear Chairman Cox,
Please do suspend the RiskMetrics IPO until such time it files a completed ADV disclosure both for itself and owners and control persons as defined by the commission who are private equity or hedge funds not currently filing separate ADV’s.
This is a clear and dramatic violation of the essence of proxy regulations by the leading proxy firm itself. RiskMetrics business is the modeling and creation of derivatives, which has played a key role in the current controversy regarding the mortgage markets.
The right decision is to require RiskMetrics to sell ISS to a more appropriate owner, for example a large public pension, as was done with Glass Lewis, or a private firm without the internal conflicts of interest that undermine the quality of proxy services, i.e. structuring derivative products for hedge funds. Failure to do so may indeed repeat some of the tough lessons learned from the accounting industry, in my opinion.