The U.S. Securities and Exchange Commission (SEC) has reinstated a policy allowing firms to request waivers from certain automatic disqualifications that result from enforcement actions during settlement negotiations. SEC Chair Paul Atkins announced this policy shift on Friday, marking a departure from the previous approach where waiver considerations were handled separately from settlement discussions.
Under federal securities laws, enforcement actions can trigger automatic disqualifications, such as the loss of Well-Known Seasoned Issuer (WKSI) status or restrictions on participating in private securities offerings under Rule 506 of Regulation D. These disqualifications can significantly impact a firm’s operations and market activities.
In February 2021, Acting SEC Chair Allison Herren Lee announced that the Division of Enforcement would no longer recommend settlement offers conditioned on the grant of waivers from these automatic disqualifications. This policy aimed to separate the enforcement process from waiver considerations, ensuring that waivers were not used as leverage in settlement negotiations. Lee emphasized that waiver determinations should be made independently to protect investors and maintain market integrity. ([bclplaw.com](https://www.bclplaw.com/en-US/events-insights-news/sec-division-of-enforcement-no-longer-recommending-settlement-offers-contingent-on-waivers.html?utm_source=openai))
The recent policy reversal under Chair Atkins suggests a more integrated approach, allowing firms to address both enforcement settlements and waiver requests concurrently. This change may streamline negotiations and provide firms with greater clarity on the potential consequences of settlements.
The SEC’s enforcement actions have led to significant settlements in recent years. For instance, in October 2024, JPMorgan Chase agreed to pay $151 million to settle five enforcement cases, including allegations of misleading disclosures to brokerage customers. The settlement comprised $61 million in civil fines and $90 million in reimbursements to affected customers. ([reuters.com](https://www.reuters.com/business/finance/jpmorgan-chase-reaches-100-million-settlement-with-sec-over-disclosures-2024-10-31/?utm_source=openai))
Additionally, in August 2024, the SEC announced settlements with 26 firms for recordkeeping failures related to off-channel communications, resulting in over $390 million in civil penalties. These cases underscore the SEC’s commitment to enforcing compliance and the substantial financial implications for firms found in violation. ([bclplaw.com](https://www.bclplaw.com/en-US/events-insights-news/sec-enforcement-sweep-regarding-off-channel-communications-net-26-more-settlements-and-over-dollar390-million-in-civil-penalties.html?utm_source=openai))
The reinstated policy allowing concurrent consideration of waivers and settlements reflects the SEC’s evolving approach to enforcement and regulatory compliance. Firms engaged in settlement discussions should assess how this policy may influence their negotiation strategies and the potential for obtaining necessary waivers to mitigate operational disruptions.