* Moxy Vote launched in 2009, drew 200,000 users
* Co-founder Schlegel cites fees and complex voting rules
By Ross Kerber
July 10 (Reuters) - Shareholder voting service Moxy Vote said it will shut down on July 31, ending a pioneering effort to give ordinary investors more say in how companies are run.
The West Chester, Pennsylvania, company said on Tuesday it was losing money amid complex rules governing how companies interact with retail shareholders.
In the wake of the financial crisis, governance specialists hoped mom-and-pop investors would press companies to become more accountable. Along with Moxy Vote, other new on-line efforts include proxydemocracy.org and sharegate.com.
All aim to help small investors become better overseers of their assets, such as allowing them to track the annual proxy elections where corporations chose directors and seek approvals for executive pay. Frustrated shareholders staged several revolts in the just-ended spring proxy season, such as rejecting the pay package of Citigroup Inc Chief Executive Vikram Pandit in April.
But now the on-line efforts look challenged themselves. In an interview, Moxy Vote co-founder Mark Schlegel said his 10-person startup faced two main problems as it tried to make its website as a place for investors to vote their shares.
First, some brokerage companies would not pass along shareholder ballots, saying they would do so only when required by U.S. Securities and Exchange Commission rules. Also, proxy agents have charged Moxy Vote significant fees that public companies would not reimburse.
Both problems became too much for the three-year-old company, Schlegel said, even though it had about 200,000 registered users and was growing quickly.
“The headwinds were too strong for us. Until the regulatory environment changes, it’s going to be a tough go for anybody like a Moxy Vote,” he said.
Large brokers that worked with Moxy Vote included E*Trade Financial Corp and TD Ameritrade Holding Corp, Schlegel said. He declined to name the brokerage firms that did not pass along ballots and said Moxy Vote received a lot of help from the close-knit proxy industry, where Moxy Vote’s shutdown quickly drew notice.
“It is no easy matter to engage large numbers of retail investors in corporate governance and proxy voting and Moxy Vote is to be commended for its efforts,” said Chuck Callan, senior vice-president at Broadridge Financial Solutions Inc. It is the largest provider of proxy services for investors who own shares through brokerage accounts.
Broadridge’s role can put it at odds with transfer agents that help companies communicate directly with investors. But Charles Rossi, president of a transfer-agent trade group, also praised Moxy Vote’s efforts.
“Because of the system we operate under, it’s unfortunate to see Moxy Vote fail,” said Rossi, who is also an executive vice-president of services firm Computershare in Massachusetts.
Proxy voting has various overseers, including the U.S. Securities and Exchange Commission, stock exchanges and FINRA, and several reviews are under way on how to improve the cumbersome system.
An SEC spokeswoman did not respond to questions about Moxy Vote. Current rules left Moxy Vote in limbo and unable to pay bills it ran up processing votes, said James McRitchie, publisher of the corpgov.net website and an informal adviser to Schlegel.
“The more successful Moxy Vote was at getting people to vote on their platform, the more money they lost,” he said.
Retail shareholders often own less than 20 percent of a typical company’s stock, but they can provide key swing votes in close proxy contests.
Backed by private investors, Moxy Vote aimed to gather small investors to help them study up for corporate contests.
To make money, Moxy Vote charged institutions with an interest in reaching smaller investors, such as to lobby for their votes. Clients included public companies, activist hedge funds and pension funds.
The company’s website, moxyvote.com, grew quickly from just 5,000 registered users a year ago and attracted some advertising. But it failed to gain the scale to pay its bills, Schlegel said. The shutdown decision was hard after investors put $4.5 million into the company, but inevitable because of the slow pace of regulatory change, he said.
Some venture-capital backing came from principals of TFS Capital, a registered investment adviser, according to Moxy Vote’s website.
Schlegel said the firm might continue some aspects of its service and praised other online efforts still under way to engage shareholders.
“Everybody has pushed the ball a little further down the field and I hope we’ve done that as well,” he added.