Wednesday, May 06, 2015

Commissioner Stein Opposes WKSI Waiver Granted to Deutsche Bank

By Jacquelyn Lumb

Commissioner Kara Stein issued a dissenting statement in response to the staff’s waiver which was granted yesterday to Deutsche Bank AG. Pursuant to the waiver, Deutsche Bank will not be considered an “ineligible issuer” under Securities Act Rule 405 for its U.K. subsidiary’s role in manipulating LIBOR. Deutsche Bank requested a waiver after its subsidiary pleaded guilty. The Division of Corporation Finance initially granted temporary relief while it considered the matter further, and yesterday granted the waiver on the condition that Deutsche Bank complies with the terms of the plea agreement. Stein said the waiver continues to erode the very low hurdle required to maintain well-known seasoned issuer (WKSI) status. “Deutsche Bank’s illegal conduct involved nearly a decade of lying, cheating, and stealing,” she said. Its criminal conduct was pervasive and widespread.

Absent the waiver, the subsidiary’s guilty plea would have prevented Deutsche Bank from qualifying as a WKSI and enjoying the benefits of that status, including the ability to register offerings on shelf registration statements that become effective automatically upon filing. Stein noted that prior Commissions did not grant WKSI waivers for criminal misconduct, but the Deutsche Bank waiver is the third waiver for criminal conduct at a large institution in a little less than two years.

Stein questioned how the majority could grant the waiver to Deutsche Bank, not only given the egregious criminal nature of its conduct, but also because the bank is a recidivist. Deutsche Bank requested and was granted WKSI waivers in 2007 and 2009 for past misconduct.

CFTC’s intervention. Stein said she also had expected to receive a request from Deutsche Bank for a waiver from the automatic disqualification for so-called bad actors under Rule 506. The bank’s conduct should have triggered an automatic disqualification absent a waiver, she noted. However, a loophole in Rule 506(d)(2)(iii) allowed the CFTC to intervene and prevent the bad actor disqualification issue from coming before the Commission. The CFTC inserted language into its final order regarding Deutsche Bank’s misconduct, advising that a bad actor disqualification should not arise as a consequence of its order, she explained. Stein said the implications of the CFTC’s actions are deeply troubling and called on the SEC to review the provision and how it is being used.

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