The US Securities and Exchange Commission (SEC) is consulting with the Divisions of Enforcement, Corporation Finance, and Investment Management, in order to take action to remove the policy from the Trump era that helps waiver penalties for firms.
Acting chair Allison Herren Lee says she is working to “reinforce the critical separation between the Commission’s enforcement process and its consideration of requests for waivers from automatic disqualifications that arise from certain violations or sanctions”.
Lee was among the first appointments made by the new US president Joe Biden following the departure of Jay Clayton.
Lee explains the Division of Enforcement will no longer recommend to the commission a settlement offer that is conditioned on granting a waiver.
This is said to ensure that these processes remain fair and serve investors’ interests.
Lee adds: “This return to the division’s long-standing practice ensures that the consideration of waivers is forward looking and focused on protecting investors, the market, and market participants from those who fail to comply with the law.”
In the statement, Lee explains that violations of certain provisions of the federal securities laws give rise to automatic disqualification from exercising certain privileges, including being considered a Well-Known Seasoned Issuer (WKSI), engaging in certain private securities offerings under Rule 506 of Regulation D, and serving in certain capacities for an investment company.
The relevant statutory and regulatory authorities contemplate that the commission generally may, in its discretion, grant waivers from these disqualifications.
“These waivers, however, should not be used as a bargaining chip in settlement negotiations or regarded as an obstacle to be overcome on the way to a settlement. A waiver is not the default position under the law, and should not be considered one under our processes,” says Lee.
Waiver requests are received and reviewed by the Divisions of Corporation Finance and Investment Management using standards that are separate and distinct from the SEC’s law enforcement mandate.
Although in many instances a waiver, either in full or with conditions, may be appropriate, Lee suggests this determination should be made separately, as a policy matter, from considerations related to the settlement of an enforcement case.
According to Lee, the staff responsible for reviewing waiver applications do so with diligence, professionalism, and independence, as do those working to bring and settle enforcement cases.
This action is meant to “enshrine best practices and ensure that our policies and procedures are designed to eliminate the potential for any structural conflicts or pressures” she explains.
Lee adds that this is the same standard expected of entities regulated by the commission, and will help preserve the independence of these separate processes and better protect investors and markets.
