U.S. Securities and Exchange Commission (SEC) Chair Mary Jo White explained and defended the SEC’s policy for granting so-called “WKSI waivers” in a speech she made at the Corporate Counsel Institute on March 12, 2015. White’s remarks represent yet another development in the ongoing dispute (both within and without the SEC) regarding the SEC’s Well-Known Seasoned Issuer (WKSI) waiver policy, which we’ve been following on this blog (see here and here). Under the SEC’s rules, an issuer that has engaged in certain criminal activities or other misconduct – absent a waiver— is automatically disqualified from taking advantage of WKSI rules, which could dramatically affect the issuer’s ability to access the capital markets and maintain its financial health.
As we reported previously, the SEC revised its guidance on WKSI waivers on two separate occasions in 2014. Then, following the SEC’s decision to grant Royal Bank of Scotland Group plc’s waiver request following its criminal conviction for conduct relating to the manipulation of London Interbank Offered Rules (LIBOR), SEC Commissioner Kara Stein issued a scathing public dissent, in which she feared that the SEC “may have enshrined a new policy—that some firms are just too big to bar.” Stein went on to say that, “If we are going to abrogate our own automatic disqualification provision . . . then we should consider discarding these provisions entirely, along with the pretense that they have any real meaning.” These statements fueled an already-existing sentiment in the media and certain political circles that WKSI waiver requests from global financial institutions and other large, powerful companies were being rubber-stamped by the SEC, regardless of how egregious the underlying misconduct. Sen. Elizabeth Warren D-MA), for example, stated that, “Big corporations should not get special treatment when they break the law, and the SEC needs to learn from its past failures in oversight, to demonstrate no one is above the rules, and to show some backbone.”
As we discussed here, on March 12, 2014, the Division of Corporation Finance of the Securities and Exchange Commission (SEC) revised its previous guidance on granting waivers to well-known seasoned issuers (WKSIs) to continue to qualify as WKSIs despite otherwise disqualifying misconduct. Interestingly, on April 24, 2014, the SEC further updated its revised guidance, as reflected here. Any issuer preparing a WKSI waiver request must be sure to base its request on the latest guidance, which seems to indicate that obtaining a WKSI waiver may be more difficult going forward than in the past.
Specifically, the SEC expanded its description of the framework it will use for determining if a WKSI waiver request establishes a showing of good cause. The SEC added the following language to its guidance, which indicates that the bar has been raised for obtaining a waiver if the underlying cause of the ineligibility was a criminal conviction or a scienter based disclosure violation: “Where there is a criminal conviction or a scienter based violation involving disclosure for which the issuer or any of its subsidiaries was responsible, the issuer's burden to show good cause that a waiver is justified would be significantly greater.”
On March 12, 2014, the SEC updated its guidance regarding the framework it will follow in reviewing a “WKSI waiver” request. Such a waiver – which, if granted, allows an issuer to continue to qualify as a WKSI despite otherwise disqualifying misconduct – is critical to the affected issuer’s ability to access the capital markets. These waivers have become particularly important for bank and other financial holding companies with large networks of subsidiaries, one or more of which may have been charged with mortgage securities fraud or other crimes arising out of the recent financial crisis. Under the revised guidance, the SEC will consider many of the same factors in a waiver request as before, but will no longer highlight certain aspects of the underlying offense as threshold issues, as under the prior guidance. As a result, issuers will need to take greater care in their waiver requests to address all of the various considerations raised by the SEC in its guidance and apply them to the issuer’s particular facts and circumstances.