Contact Bates Today

Bates Group is with you every step of the way. Contact us today for more information on how our End-to-End Solutions can help your firm.

Get My Solution Started

Bates Group Logo

We’re looking for talent! Interested in a career at Bates Group? Visit our Careers page.

Bates Research  |  03-19-15

SEC Addresses Waiver Policy

There has been quite a bit of controversy lately surrounding the SEC's use of waivers, which Chair Mary Jo White decided to address last Thursday. When financial firms settle cases or other complaints against them, there are often clauses in securities laws that are triggered, banning the firm from activity in a given area. Firms can request a waiver from the SEC to avoid these automatic penalties from being imposed upon their activities. There are three key penalties that firms typically request waivers to avoid: a ban on managing mutual funds, a ban on raising money for private companies, and a ban on issuing shares or bonds without SEC approval.

Granting waivers became a focal point back in April of last year, when SEC Commissioner Kara Stein objected to a waiver granted to a global financial institution. In that case, the company had requested a waiver so that it would not lose its "Well-Known Seasoned Issuer (WKSI)" status as a result of its conviction in matters related to LIBOR. Without a waiver, it would have become ineligible for WKSI status under Rule 405 of the Securities Act of 1933. Being a WKSI carries with it a number of benefits, most notably in shelf registration, which avoids the imposition of fees until securities are sold and allows the WKSI to bypass an SEC review, meaning it can bring an issuance to market at the exact time it wants to. The SEC decided to grant a waiver in that case, so that the firm could continue operating under its WKSI status, which drew the aforementioned dissenting opinion from Commissioner Stein. Her opinion included a comment that "some firms are just too big to bar," which, in today's financial regulatory climate, attracted a lot of attention.

In her remarks before the Corporate Counsel Institute at Georgetown University, SEC Chair Mary Jo White addressed the criticism surrounding the agency's use of waivers. Within her remarks were a number of notable points regarding the application of waivers:

  • "...the misconduct at issue in the enforcement case involves a relatively limited number of a firm’s employees or a specific business line, and is wholly unrelated to the activities that would be the subject of the disqualification..."
  • "The triggering event for a disqualification is not even the misconduct itself."
  • "One series of questions that has been raised in the dialogue is whether financial institutions that are potentially subject to disqualifications are too big to indict or otherwise charge, too big to jail, or even too big to bar. My answer to all of these and similar questions is a resounding, 'No.'"

Finally, her analysis rested on the idea that the waivers themselves are not enforcement tools meant to punish a guilty party -- the SEC has plenty of other tools to do that. This echoes previous statements made by SEC Corporation Finance Director Keith Higgins and SEC Commissioner Daniel Gallagher. For example, in the previously mentioned instance, the punishment came in the form of a fine.

White also painted a picture of the rigors of the review process surrounding waiver grants (refuting implications that it is a knee-jerk or rubberstamp process), and called out a few examples with specific statistics (506 "Bad Actor" waivers, for example -- since that rule has become effective, 13 have been granted and 14 denied).

Market reaction is still unfolding, but some critics have already pointed out that the very language of the "Bad Actors" Rule makes specific reference to the deterrent effects of disqualification, in contrast to the position adopted by the SEC. It may still be necessary, as Commissioner Gallagher has suggested, for Congress to clarify the intended role of both disqualifications and waivers.