Securities Regulation Daily Wrap Up, FRAUD AND MANIPULATION—W.D. Tex.: Intervenors oppose motion seeking support for disclosures in challenge to Texas bill, (Oct 21, 2025)

By Rebecca E. Hoffman, J.D.

The plaintiff argued that the intervenors must identify people harmed by the plaintiff’s statements, but the intervenors responded that Fed. R. Civ. P. 26(a) does not require this.

The Texas Stock Exchange and The Texas Association of Business, intervening in proxy advisor Institutional Shareholder Services’ (ISS) challenge to Texas Senate Bill No. 2337, responded Oct. 17 to ISS’s motion to compel the intervenors to supplement their disclosures pursuant to the federal rules. The intervenors dispute the insufficiency of their disclosures (Institutional Shareholder Services, Inc. v. Paxton, No. 1:25-cv-01160 (W.D. Tex. Oct. 17, 2025)).

Texas Senate bill: constitutional? S.B. 2337 requires proxy advisors to prominently disclose when proxy recommendations are not made in the sole financial interest of shareholders, including recommendations relating to environmental, social, or governance (ESG) and diversity, equity, or inclusion (DEI). ISS seeks to block enforcement of the bill, which was signed into law in June, asserting that it would violate its free speech rights. The defendant, Texas’s attorney general Ken Paxton, and the intervenors support the new law’s investor protections, and argue that the speech to which ISS refers is false and deceptive, and therefore not protected by the First Amendment.

According to ISS’s motion, the intervenors are concerned that prospective listees on the Texas Stock Exchange and members of Texas Association of Business will be harmed by false proxy advice if the new law cannot be enforced against ISS. ISS averred that Fed. R. Civ. P. 26(a) requires the intervenors to identify such listees or members who might be harmed, and to disclose documents that support the argument. In the absence of this information, the intervenors’ initial disclosures are deficient, and must be supplemented, the motion stated.

“The notion that Intervenors could voluntarily intervene in this case, wave around allegations of fraud, claim that Intervenors and their future listees and members are harmed by ISS’ conduct, and then wholly avoid any discovery to test those assertions strains credulity,” the ISS declared.

Disclosing party determines disclosures. In its response, the intervenors asserted that ISS’s reports and recommendations will reveal evidence of the company’s deceit, rather than any documents that the intervenors can provide. Rule 26(a)(1) “requires disclosure of information ‘that the disclosing party may use to support its claims and defenses,’” and “Intervenors complied with the rule by identifying ISS’s witnesses, documents ISS and third parties will produce, and public documents attached to Intervenors’ filings in this case.” In other words, the intervenors determine who and what will substantiate their position, and the plaintiff cannot decide what is relevant to the intervenors’ arguments.

Moreover, “[w]hether ISS plans to seek additional discovery, or believes that additional documents or witnesses are relevant, has no bearing on the sufficiency of Intervenors’ initial disclosures,” the opposition filing stated. The intervenors did file amended disclosures, adding two of intervenors’ employees, so that “the parties [may] focus their time and attention on the real issues in this case—and not those manufactured by ISS.”

The case is No. 1:25-cv-01160.

Attorneys: Dana A. Raphael (Hogan Lovells) for Institutional Shareholder Services Inc. Charles Lee Winkelman, Office of the Attorney General, for Ken Paxton.

Companies: Institutional Shareholder Services Inc.

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