Statement Summary
The SEC Chair announced plans to restore the practice of simultaneously considering settlement offers alongside waiver requests in enforcement actions. This change aims to enhance efficiency and fairness in the settlement process, allowing the Commission to evaluate both aspects comprehensively and utilize its resources effectively. The simultaneous review, suspended by the previous administration, aims to align with the SEC’s mission of protecting investors, facilitating capital formation, and ensuring market integrity. While the Commission retains discretion in accepting offers, this initiative is expected to streamline the resolution process and support investor interests. The detailed evaluation of waiver requests will continue to prioritize market integrity and investor protection.
Original Statement
Since returning to the Commission, I have examined different processes to ensure that the Commission effectively and efficiently carries out its three-part mission to protect investors; facilitate capital formation; and maintain fair, orderly, and efficient markets. One area I consider ripe for change is the way the Commission evaluates settlement offers in Commission enforcement actions that are accompanied by contemporaneous requests for Commission waivers from automatic disqualifications and other collateral consequences that result from the underlying Commission enforcement action.
In consultation with the Divisions of Enforcement, Corporation Finance, and Investment Management, I believe that it is appropriate to restore the Commission’s prior practice of permitting a settling entity to request that the Commission simultaneously consider an offer of settlement that addresses both an underlying Commission enforcement action and any related waiver request. This salutary practice promotes fairness and economy of Commission resources but unfortunately was changed by the prior Administration.
An offer of settlement in a Commission enforcement action that includes a contemporaneous waiver request will be presented to the Commission by the staff for simultaneous consideration. This approach will enable the Commission to consider both the proposed settlement and waiver request together, within the context of the relevant facts, conduct, and consequences, and with the benefit of the analysis and advice of the relevant Commission Divisions, to assess whether the proposed resolution of the matter in its entirety achieves the Commission’s three-part mission more generally.
This approach will enhance efficiency and certainty in the settlement process and avoid a siloed internal consideration of the matter, which are critical factors in reaching comprehensive settlements that are in the best interests of investors. A return to simultaneous Commission consideration of settlement offers and related waiver requests does not, of course, subject the Commission to any obligation to accept a settlement offer. The Commission may determine not to accept a simultaneous offer of settlement and waiver request for numerous reasons, including because it wishes to consider the settlement and waiver requests independently.
Nor is this process meant to foreclose a settling entity from assessing its options where the Commission simultaneously considers a settlement offer and waiver request and accepts the settlement offer, but declines to approve the waiver request. Where this occurs, my expectation is that the staff will promptly notify the prospective defendant or respondent, who then must promptly notify the staff (typically within a matter of five business days) of its agreement to move forward with that portion of the settlement offer accepted by the Commission. If the prospective defendant or respondent does not promptly notify the staff of its agreement to move forward with the portion of the settlement offer that was accepted or otherwise withdraws its offer of settlement, the negotiated settlement terms that would have resolved the underlying enforcement action may no longer be available, and a litigated proceeding may follow.
I firmly believe that reinstating this practice will benefit investors, the capital markets, and the Commission’s processes more broadly.
Key Considerations
Such disqualifications and consequences include:
- Loss of well-known seasoned issuer (WKSI) status for the purposes of securities offerings;
- Loss of statutory safe harbors under the Securities Act of 1933 and the Securities Exchange Act of 1934 for forward-looking statements;
- Loss of private offering exemptions provided by Regulations A, D, and Crowdfunding under the Securities Act;
- Loss of the exemption from registration under the Securities Act for securities issued by certain small business investment companies and business development companies;
- Inability to act or serve in certain capacities pursuant to Section 9(a) of the Investment Company Act;
- Prohibition on a registered investment adviser from receiving cash fees for solicitation under Rule 206(4)-3 of the Investment Advisers Act of 1940.
In July 2019, Chairman Jay Clayton announced a process by which the Commission would consider settlement offers that simultaneously addressed enforcement actions and related waiver requests. In February 2021, Acting Chair Lee announced her intent to implement a different process. I expect that the analysis performed by the policy Divisions regarding the appropriateness of a waiver of an automatic disqualification will continue to be rigorous and fair, and, in the context of determining whether the applicant has met the applicable standard for the waiver, will continue to seek what is best for the protection of investors, the markets, and the public, as well as the promotion of market integrity.
