SEC Chair White Discusses Disqualifications, Exemptions and Waivers

SEC Chair Mary Jo White spoke at the Corporate Counsel Institute. Her remarks focused on how the SEC has and should exercise its authority over certain kinds of enforcement actions such as disqualifications, exemptions and waivers under the federal securities laws.

Chair White stated that the “ultimate objective” of the SEC’s decisions to grant waivers is to “safeguard the public interest and protect investors.” She explained that in order to achieve this objective, the SEC must scrutinize each waiver decision and apply the applicable legal standards uniformly to determine whether the entity or individual can engage “responsibly and lawfully” in the activity at hand. She noted that waivers are not intended to be used as an additional enforcement tool “designed to address misconduct or as an unjustified mechanism for deterring misconduct.”

Chair White defended the quality of the SEC staff’s analysis when deciding whether to grant a waiver by emphasizing that staff carefully reviews the nature of the violation, the duration of the wrongdoing, the specific employees involved and their seniority, as well as the state of mind of the participants. She noted that the staff also reviews the extent of the remediation implemented by the institution in the wake of the enforcement action and what measures will be used on an ongoing basis in the future.

Chair White stressed that no financial institutions are “too big to indict or otherwise charge, too big to jail, or even too big to bar.” In order to achieve lasting deterrence, Chair White explained, the “cost of doing business” mentality of wrongdoers must be broken. According to Chair White, the most effective deterrent ultimately is strong enforcement against the individuals who are responsible, especially senior executives.

Lofchie Comment: Although it may be viewed as a non-substantive procedural matter, part of the problem with granting waivers is this: the statute elicits the presumption that a firm which has been found guilty of a violation is subject to disqualification unless a waiver is granted by the SEC (which is usually the case). More sensibly, a firm that is convicted of a violation should not be subject to a disqualification automatically; rather, the SEC should be required to seek disqualification affirmatively in those unusual instances where it is necessary. Changing the process (which would require a statutory change) would align it with reality and eliminate the SEC’s need to justify itself in many instances in which it grants a waiver from disqualification appropriately.

Comments are closed.