Published by Ignites.

By Peter Ortiz April 21, 2014

J.P. Morgan suffered another defeat against anti-genocide advocates who successfully targeted a money market fund. This followed the protest group’s first victory against the asset manager in 2011.

 J.P. Morgan had requested that it avoid SEC enforcement action if it excluded a shareholder proposal from investor William Rosenfeld to its Municipal Money Market fund. But The SEC rejected the request last week.

The proposal asks the fund’s board to put in place transparent procedures that would prevent holding investments that “substantially contribute to genocide or crimes against humanity.”

In addition to being a fund shareholder, Rosenfeld is co-founder the group Investors Against Genocide, along with Eric Cohen.

J.P. Morgan, Franklin Resources, Vanguard and Fidelity have been among the biggest firms that have fought against Investors Against Genocide, while the group has had success with TIAA-Cref and T. Rowe Price.

The firms that are resistant to the group note that they support human rights and have engaged with companies they have concerns about, but have generally recommended that their shareholders vote against the anti-genocide ballots, saying it would interfere with the investment policies of their funds.

J.P. Morgan petitioned the Securities and Exchange Commission, citing a regulation that allows exclusion of proposals if it does not have a significant impact on funds’ assets and business. The firm noted that the fund does not invest in PetroChina, which Investors Against Genocide has singled out as a company that has contributed to genocide in Sudan.

Without providing a reason, the SEC ruled that it did not agree with J.P. Morgan’s interpretation of the regulation.

J.P. Morgan declined to comment.

Rosenfeld argued that SEC rulings prohibit shareholder proposals from being excluded if the proposal “raises significant social policy issues.” He also argued that up to 20% of the fund’s assets could be invested in short-term bonds or notes of companies “that substantially contribute to genocide or crimes against humanity.”

“The fact that the fund does not currently invest in companies that substantially contribute to genocide or crimes against humanity today does not prevent it from doing so in the future,” Rosenfeld wrote in a March 13 letter to the SEC after J.P. Morgan filed its own letter to the agency challenging the proposal.

The SEC staff has already ruled in favor of genocide-free investing in proposals involving JPMorgan Chase, Franklin Templeton, ING and various Fidelity funds, Rosenfeld also noted.

The shareholder proposal will need to get support from 3% of shareholders in order to get on the ballot next time there is a proxy, Cohen says. He is not concerned about reaching that threshold, as the anti-genocide proposals directed at other mutual funds have done much better than 3%, he says.

Cohen did express concern about the group’s efforts to get future anti-genocide ballots on JPMorgan Chase’s corporate ballot. The ballots titled “Genocide-free investing” in 2011 and 2012 garnered 9.3% and 10.7% of shareholder votes, respectively. This allowed the group to introduce a proposal in 2013.

But in the 2013 ballot, J.P. Morgan excluded “genocide-free” and called it a proposal on human rights “to be less interesting to the reader,” Cohen says.

“[JPMorgan Chase] watered down the language, and we think they did that deliberately,” Cohen says.

Stephen Davis, senior fellow and associate director of Harvard Law School’s program on corporate governance, says the SEC’s action on the J.P. Morgan money fund is a positive for shareholders and a strong message to fund firms.

“It is an assertion by regulators that investors deserve more of a say on how mutual funds act as owners in the marketplace,” Davis says. “It’s part of a larger focus by regulators to get funds to be more accountable.”