SEC Commissioner Kara M. Stein issued a dissenting statement regarding the SEC Order granting waivers for disqualifications to certain financial entities that plead guilty to foreign exchange rate manipulation. The financial entities described include those that have well-known seasoned issuer (“WKSI”) status.
Commissioner Stein explained that the disqualifications were triggered for generally the same behavior: a criminal conspiracy to manipulate exchange rates in the foreign currency exchange spot market. She stated that there are “compelling reasons” to reject the requests to waive the automatic disqualifications required by securities laws. Commissioner Stein emphasized that the recidivism and repeated criminal conduct of the financial institutions should lead to revocations of prior waivers, noting that the SEC has granted at least 23 WKSI waivers to these five institutions in the past nine years, excluding Bad Actor waivers.
Commissioner Stein stated that it is “troubling” that the SEC consistently grants waivers for criminal conduct, especially when the SEC refuses to enforce its own “explicit requirements for such waivers.” Commissioner Stein said that issuing these waivers “effectively rendered criminal convictions of financial institutions largely symbolic.”
Lofchie Comment: Commissioner Stein is consistent in her opposition to the routine granting of waivers of WKSI disqualifications. But the reason waivers are routinely granted is not that granting them renders criminal convictions “largely symbolic” (a description that ignores the fact that the relevant firms paid out billions of dollars in penalties and face further litigation, and that individuals may also face additional penalties). The reason waivers are routinely granted is because: (i) the government has extracted the full amount of penalties that are either attainable or reasonable, or both, in light of the crimes or (ii) WKSI disqualification is not a penalty that is particularly suited to the relevant crime. The routine grant of the waivers suggests that they should be automatic and that disqualifications should be imposed only in particularly appropriate circumstances.