By Mark S. Nelson, J.D.
SEC Commissioner Luis A. Aguilar once again voiced his worries that the agency’s waiver process fails to capture the ambiguities that typically infuse the decision to grant or deny a person or entity accused of misconduct a waiver from certain disqualifications under the federal securities laws. This time, Aguilar said in a public statement the SEC should adopt a more “flexible” or “calibrated” mode of evaluating waiver requests.
According to Aguilar, the SEC’s existing waiver process is fraught with predictive judgments about how a person who acted badly in the past is likely to behave in the future based mostly on a pledge of better behavior. He said this is of special concern when the person or company seeking a waiver has previously asked for multiple waivers.
“In fact, my own review of many waiver applications indicates that waivers do not always fit neatly into ‘grant’ or ‘deny’ buckets, but oftentimes fall somewhere in between,” said Aguilar. “The Commission’s waiver protocol could be strengthened by adopting a more versatile approach, one that allows cases that might fall in the grey area to avoid a total prohibition by allowing the requesting party to adopt appropriate limitations designed to protect investors and the public.”
Aguilar urged the SEC to think about expanding its use of conditional waivers, like the one the Commission approved for Bank of America, N.A. last year. Aguilar also said he advocates conditional waivers because they can help to deflect criticism from legislators and others that the SEC has a light touch when it comes to disqualifications of large banks.
Moreover, Aguilar said the SEC’s internal process for tracking waivers is less transparent than it should be, especially when the agency’s staffers act under delegated authority. Aguilar said while the situation has improved under SEC Chair Mary Jo White, the Commission still needs to find a way to get a “holistic view” of waivers, and he said the Commission should think about creating a public website that shows each stage of the waiver process.
He noted that Rep. Maxine Waters (D-Cal), the ranking member of the House Financial Services Committee, wrote to White earlier this year asking the agency to improve the public transparency of its waiver process. Waters has circulated a discussion draft of a bill that seeks to clarify the SEC’s waiver requirements.
Earlier this year, Aguilar joined Commissioner Kara M. Stein in dissenting from an order granting Oppenheimer & Co., Inc. a waiver after it was fined by the SEC and became the subject of charges by the Financial Crimes Enforcement Network. Stein has voiced her objections to waivers on at least two other occasions regarding Deutsche Bank AG and for multiple waivers granted to UBS AG, Barclays Plc, Citigroup Inc., JPMorgan Chase & Co., and the Royal Bank of Scotland Group Plc.