Proposed Bad Actor Disqualification Act of 2019 and SEC Statement on Contemporaneous Settlement Offers and Waiver Requests

Last month, Representative Maxine Waters, chair of the House Financial Services Committee, introduced a bill entitled Bad Actor Disqualification Act of 2019 (“proposed bill”). The proposed bill is intended to increase transparency and accountability in the Securities and Exchange Commission’s (“SEC”) process of providing bad actor waivers. It sets up a three-step process to request and obtain a waiver. First, a temporary waiver period of 180 days; second, a notice and comment period for the public; third, the SEC’s determination on the waiver petition. The proposed bill prohibits any SEC Staff from advising the person seeking a waiver regarding the likelihood of the waiver being granted and requires the SEC to maintain a database of entities who have applied for and been denied a waiver.

On July 3, 2019, Chairman Clayton of the SEC issued a Statement Regarding Offers of Settlement, which may have been prompted by the proposed bill. In his statement, Clayton pointed out that an appropriate settlement can be preferable to litigation. Clayton noted four factors that drive appropriate settlements: avoiding litigation costs, the willingness of the SEC to litigate, promptly remedying harm to investors and the desire for certainty. Noting that the separation of settlement offers and waiver requests “may not produce the best outcome for investors in all circumstances,” Chairman Clayton announced that going forward settling entities will be able to simultaneously submit an offer of settlement and a waiver application for the SEC’s consideration and approval. This change will benefit both the SEC Staff — being able to address both the underlying enforcement action and any related collateral disqualifications at the same time —  and the entities —  being able to have more certainty about this process. Clayton added that the SEC is under no obligation to accept any settlement offer and may determine not to accept a simultaneous offer of settlement and waiver request on the basis of form alone. The full text of his statement can be found here.