SEC’s Waiver of Rule 506(d) Disqualification for Oppenheimer & Co. Sparks Dissent Among SEC Commissioners


On January 27, 2015, the Securities and Exchange Commission (the “SEC”) issued an order granting a waiver to Oppenheimer & Co. Inc. (“Oppenheimer”), a full-service broker-dealer, from automatic disqualification under Rule 506(d) of the SEC’s Regulation D (the “Waiver Order”) in connection with Oppenheimer’s violations of the Securities Act of 1933 (the “Securities Act”) and the Securities Exchange Act of 1934 (the “Exchange Act”)—violations for which the SEC issued, on the same day, a cease-anddesist order and assessed civil money penalties, disgorgement, and interest of $10 million.1 The SEC’s decision to grant the waiver was the object of a formal dissent by Commissioners Luis A. Aguilar and Kara M. Stein, issued on February 4, 2015, in which the two Commissioners harshly criticized the SEC’s grant of Oppenheimer’s waiver request in light of what they described as the “wholly failed compliance culture” at Oppenheimer and the firm’s numerous violations of the securities laws and the Bank Secrecy Act (the “BSA”).


Rule 506 of Regulation D provides a “safe harbor” exemption from Securities Act registration for private offerings that meet the conditions of the Rule. The rule also includes, however, a “bad actor” disqualification provision, which renders the exemption unavailable if the issuer (or various related parties) has been the subject of specified enforcement actions, including an SEC cease-and-desist order under Section 15(b) of the Exchange Act,2 such as the cease-and-desist order issued against Oppenheimer on January 27, 2015.3

Rule 506(d) provides that the SEC may waive the automatic disqualification upon a showing of good cause if the SEC determines that the disqualification is not necessary under the circumstances.4

Oppenheimer requested that the SEC waive disqualification and provided several reasons for doing so, including that Oppenheimer would retain a law firm to review its policies and procedures relating to offerings using the Rule 506 exemption, adopt certain improvements or changes in its investment banking business and its wealth management business, and complete firm-wide training for all registered persons regarding compliance with Rule 506 of Regulation D. The SEC granted the requested waiver in light of Oppenheimer’s commitments.5


In their dissenting statement, Commissioners Aguilar and Stein expressed disappointment with the SEC’s decision to grant Oppenheimer’s requested waiver, arguing that “it is difficult to conceive of a better justification for the bad actor disqualification under Rule 506.”6 They also noted that Oppenheimer has a “long and unfortunate history of regulatory failures,” citing at least 30 regulatory actions against Oppenheimer since 2005, including prior penalties for similar AML violations in 2005 and 2013, that are “cumulatively indicative of a wholly failed compliance culture.”

In addition to concluding that Oppenheimer’s history weighed heavily against granting its requested waiver, Commissioners Aguilar and Stein also took issue with the conditions upon which the waiver was granted. According to the Commissioners, the conditions “lack teeth” because they lack three critical components:7

  • First, the Waiver Order did not require that the law firm retained to review Oppenheimer’s policies and procedures regarding compliance with Rule 506 be “qualified and independent,” which the dissent asserts is a departure from the SEC’s usual practice with regard to consultants and “set[s] a dangerous precedent.” Acknowledging that the Waiver Order provides that the law firm must “not be unacceptable” to the staff, Commissioners Aguilar and Stein contended that “staff discretion is not an adequate substitute for including the standard requirements.”
  • Second, Commissioners Aguilar and Stein noted that there is no requirement that the firm’s senior management be involved in the compliance review process. The dissenting Commissioners emphasized the significance of the firm’s senior executives establishing the appropriate “tone at the top,” and being accountable for compliance.
  • Third, the Waiver Order provided a full waiver from the five-year automatic disqualification period. There is no requirement that Oppenheimer return to the SEC periodically during the five years to demonstrate that it has complied with the federal securities laws and that continuing the waiver is warranted.


Automatic disqualification under Rule 506(d) is one of many potential collateral consequences of violations of certain securities laws (including those provisions that are BSA/AML-related as were at issue in the Oppenheimer matter). Commissioners Aguilar and Stein’s dissent from the Oppenheimer Waiver Order is part of a broader movement among the media, members of Congress, regulators, law enforcement, and the general public for institutional accountability for misconduct. For example, in connection with a 2014 SEC order granting The Royal Bank of Scotland Group, plc (“RBS”) a waiver from the “bad actor” disqualification under Securities Act Rule 405 (also known as a “WKSI” waiver),8 Commissioner Stein issued a dissent expressing her frustration that the SEC “routinely” grants waivers for “bad actor” disqualifications without adequate justification and voiced concern that the SEC’s waiver of automatic disqualifications for large financial firms “enshrined a new policy—that some firms are just too big to bar.”9 On the other hand, SEC Commissioner Gallagher issued a statement the day after Commission Stein’s dissent in the RBS matter expressing concern about the “punishment-focused view of WKSI waivers,” arguing that the “misconduct itself is appropriately punished through the underlying criminal or civil enforcement process.”10

The Oppenheimer Waiver Order and the accompanying dissent illustrate the division of opinion as to the waiver of automatic disqualification provisions under the federal securities laws, but also reinforces that an institution cannot take for granted the prospects of a waiver when deciding whether to voluntarily agree to an enforcement action that may carry collateral consequences. Waivers of collateral consequences stemming from BSA/AML and sanctions-related violations should not be viewed as a foregone conclusion, especially for institutions that have a history of past violations.

Additional discussion concerning 2014 developments in the area of collateral consequences and increasingly frequent calls for institutional accountability may be found in our previous memorandum to clients entitled “2014 Year-End Review of U.S. BSA/AML and Sanctions Developments and Their Importance to Financial Institutions” available here