Also last week, acting SEC Chair Allison Herren Lee issued a statement to reverse the Clayton-era policy of simultaneously considering enforcement settlements and requests for waivers from “bad actor” consequences – e.g., loss of WKSI status, Rule 506 eligibility and PSLRA safe harbors. Commissioners Hester Peirce and Elad Roisman followed with their own statement to object to the policy change.
The move means that waiver requests will revert to the domain of Corp Fin and the Division of Investment Management, rather than everything being negotiated by the Enforcement Division and companies being able to condition their settlement offers on the grant of a “bad actor” waiver. A Sullivan & Cromwell memo explains the three-fold impact of separating settlement & waiver conversations:
First, the change in policy signals greater skepticism on the part of the SEC with respect to granting waivers to settling entities. We expect that waivers will become more difficult to obtain and, when granted, may include additional, and potentially more burdensome, conditions.
Second, the change in policy creates increased uncertainty for entities settling with the SEC because they can no longer be guaranteed Commission review of the settlement of their enforcement matter simultaneously with their requested waivers. The impact of this change as a practical matter is unclear. If a settling party is denied a waiver and then seeks to withdraw its settlement offer, it remains to be seen whether the SEC will nevertheless proceed to seek judicial approval of the settlement in the face of such attempted withdrawal.
Third, the change in policy indicates the SEC’s intent to keep waiver discussions substantially separate from enforcement recommendations. Our understanding is that these discussions generally happen separately in any case, so we do not view this as a substantive change.
-Liz Dunshee, TheCorporateCounsel.net February 16, 2021
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