February 3, 2012

Is Corp Fin Too Lenient with Waiver Letters?

A few months ago, I received this from an anonymous member:

You may have seen the recent article in the NY Times regarding how firms continue to make promises in settlements to the SEC and when those promises are broken, nothing happens. For me, this story triggered another topic that I think goes largely unnoticed, waiver letters for being an “ineligible issuer” under Rule 405. Under the Staff’s WKSI waiver standard, it seems like it’s not difficult to convince Corp Fin to take a position that grants leniency to a company that settles with the SEC for violating anti-fraud provisions of the securities laws (especially for failing to disclosure material information) such as this JPMorgan waiver letter. I think this stuff flies under the radar – even though publicly posted on the SEC’s website – because the benefits of waivers are not apparent to many that are not securities lawyers.

I appreciate the adverse implications of not granting waiver letters in these situations because eligibility to be in the market is necessary for many of their offered products. But this just begs the question, what’s the point of having an ineligible issuer rule if issuers know that it is not enforced anyway?

Well, this no longer is an obscure topic just for securities lawyers as the NY Times today ran this front-page article entitled “SEC Is Avoiding Tough Sanctions for Large Banks.” The article cites a bunch of waiver stats over the past decade. Here is an excerpt with a quote from Corp Fin Director Meredith Cross:

“The purpose of taking away this simplified path to capital is to protect investors, not to punish a company,” said Meredith B. Cross, the S.E.C.’s corporation finance director, referring to the fast-track offering privilege. “You’re not seeing the times that waivers aren’t being granted, because the companies don’t ask when they know the answer will be no.”

Wisconsin Judge Approves SEC Settlement Without Changes

As noted in this NY Times article, a Wisconsin judge who raised some of the same questions posed by Judge Jed Rakoff in the proposed SEC-Citigroup settlement six weeks ago has decided to bless the SEC’s settlement with Koss Corporation after all – a nice victory for the SEC (this Wisconsin case was first noted in this blog of mine). The SEC was able to keep its proposed terms but agreed to redraft its settlement to more explicitly spell out all of the remedial actions required of Koss. It will be interesting to see how the SEC fares with Judge Rakoff…

More on “The Mentor Blog”

We continue to post new items daily on our blog – “The Mentor Blog” – for members. Members can sign up to get that blog pushed out to them via email whenever there is a new entry by simply inputting their email address on the left side of that blog. Here are some of the latest entries:

– Dodd-Frank: Revised Whistleblower Policies
– Top 10 Whistleblower Decisions of 2011
– Should/Must Corporate Minutes Be Signed?
– Conflicts of Interest: Serving on Another Company’s Board
– More on “Ringing the NYSE’s Bell”

– Broc Romanek