Securities Litigation

Republican-appointee Commissioners Roisman and Peirce issued a statement on February 12 publicly disagreeing with Acting Chair Lee’s recent fiat discontinuing the Enforcement Division’s practice of proposing settlements that are contingent upon the Commission’s approval of waivers for collateral disqualifications arising from the settlement.

The Commission’s actions on enforcement settlements and waiver requests were separate processes until 2019, when the Commission changed its policy to allow them to be considered together.  That made sense, because they arise from the same conduct, both often are integral to a Respondent’s settlement calculus, and streamlined Commission actions. But Acting Chair Lee reversed that position, returning to the prior (arguably more clumsy and uncertain) policy. I covered that announcement here.

Disagreeing, Commissioners Roisman and Peirce wrote:

• The judgment of the Division of Investment Management and the Division of Corporation Finance remained fully independent of the Division of Enforcement, and the policy has not created structural conflicts or pressures between the settlement and waiver processes undertaken by the different operating divisions.

They acknowledged that reverting to the prior policy re-introduced more uncertainty to the enforcement process:

• Insisting that an entity that is willing to settle be left in the dark about whether its waiver application will be granted significantly alters the entity’s settlement calculus because it undercuts the certainty and finality that settlement might otherwise provide...
• It re-introduces an artificial separation between the process by which an entity reaches a resolution on its violations of securities laws and the process by which it obtains clarity with respect to the collateral consequences of those violations. The result will be a longer period between the initiation and resolution of enforcement matters. We do not see how this outcome advances either the Commission’s mission or serves the interests of investors.

The dissenting statement is here.

Thomas K. Potter, III (tpotter@burr.com) is a partner in the Securities Litigation Practice Group at Burr & Forman, LLP. Tom is licensed in Tennessee, Texas, and Louisiana. He has over 34 years of experience representing financial institutions in litigation, regulatory, and compliance matters. See attorney profile.