Acting SEC Chair, Allison Herren Lee, announced in a February 11 statement that going forward, the Securities and Exchange Commission (SEC) will review offers of settlement and requests for waivers of collateral consequences separately and that the Division of Enforcement will no longer recommend to the SEC a settlement offer that is conditioned on granting a waiver. This action reverses the approach adopted by former Chairman Jay Clayton, which he announced and explained the reasoning behind in a statement published on July 3, 2019.
Depending on the securities law violations, certain SEC enforcement settlements can result in automatic statutory disqualification from privileges and other collateral consequences, including loss of well-known seasoned issuer (WKSI) status, the ability to conduct certain exempt offerings (bad actor status), and the ability to serve in certain capacities for registered investment companies. Sometimes, these collateral consequences are related to the underlying securities law violation, but sometimes, they are not.
The Divisions of Corporation Finance and Investment Management review requests to waive these disqualifications and make recommendations to the SEC as to whether such requests should be granted or denied. The SEC may vote to grant or deny waiver requests wholesale, or can place conditions on the grant of a waiver, in its discretion. Parties desiring to settle often submit their offer of settlement and their waiver request simultaneously, and as mentioned above, since 2019, the SEC has reviewed these submissions together (see our prior post). This practice allowed settling parties to condition their offer of settlement on the SEC’s waiver of collateral consequences.
Acting Chair Lee’s statement revises this practice, noting that while “a waiver, either in full or with conditions, may be appropriate, this determination should be made separately, as a policy matter, from considerations related to the settlement of an enforcement action.” Commissioners Hester Peirce and Elad Roisman issued a dissenting statement, explaining why they disagree with the change in policy and believe the SEC should continue to consider and accept contingent settlement offers.