SEC Lacks Staff to Block Shareholder Proposals, But Can Still Sue Ukranian Hacker for Manipulating EDGAR System

Chris Gaetano
Published Date:
Jan 15, 2019

With the government shutdown now entering record-breaking lengths, public companies have grown increasingly nervous at the prospect of actually having to call shareholder proposals to a vote, as the Securities and Exchange Commission (SEC) lacks staff to process requests to block them, according to the Wall Street Journal. This means that corporations may need to take on issues that affect matters such as political contributions and lobbying, shareholder special meeting rights, climate change, diversity and inclusion, and the presence of an independent board chair. In order for a company to block such proposals from coming to a vote, they would need special sign-off from the SEC, but with the agency currently operating with a skeleton crew, it cannot effectively process the wave of such requests that tend to come in the winter ahead of annual meeting season in spring. The Journal noted that such shareholder proposals are frequently excluded from ballots, with the SEC able to strike them even if shareholders had successfully approved the measures before, usually by determining that they're not economically relevant to the company's performance or don't relate to its core business activities. 

At the same time, the SEC was able to file suit against a Ukrainian hacker and 12 other defendants over a scheme that involved hacking into the SEC's  EDGAR database to access nonpublic earnings information on publicly traded companies for the purposes of insider trading, according to MarketWatch

The SEC’s complaint alleges that Ukrainian hacker Oleksandr Ieremenko—who was charged in 2015 for hacking newswire services—turned his attention to EDGAR and, using deceptive hacking techniques, gained access in 2016. Ieremenko extracted EDGAR files containing nonpublic earnings results. The information was passed to individuals who used it to trade in the narrow window between when the files were extracted from SEC systems and when the companies released the information to the public. In total, the defendants made trades based on nonpublic information found in 157 earning announcements from May to October 2016 and generated at least $4.1 million in illegal profits.

“The trader defendants charged today are alleged to have taken multiple steps to conceal their fraud, including using an offshore entity and nominee accounts to place trades,” said Enforcement Division Co-Director Steven Peikin. “Our staff’s sophisticated analysis of the defendants’ trading exposed the common element behind their success, providing overwhelming evidence that each of them traded based on information hacked from EDGAR.”


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