SEC's Reboot on Waiver Requests in Enforcement Settlements

Under the agency's new approach, the Commission will make known whether waivers will issue at the same time it provides a decision on a proposed settlement agreement. The Commission's more rational approach — which seems somewhat at odds with the proposed Bad Actor Disqualification Act of 2019 that would make it much harder for a settling party to obtain waivers — will allow companies and their shareholders to have certainty regarding the consequences of the resolution of SEC enforcement proceedings.

Collateral Consequences of Settling

The settlement of an enforcement action can result in potentially devastating disqualifications under the securities laws even if the settlement explicitly disclaims an admission of liability and the alleged wrongdoing involved only a few employees or a specific subsidiary or business area. Unbeknownst even to many experienced securities litigators, terms of certain settlements — such as cease and desist orders, the retention of an independent compliance consultant, or an injunction against further violations — automatically can trigger a number of disqualifications. The consequences may include loss of status as a well-known seasoned issuer, disqualification from serving as an investment adviser or underwriter to certain registered investment companies, loss of safe harbor provisions, and loss of other issuer registration exemptions provided under the securities laws.