SEC Retunes on Jointly Considering Settlement Offers and Waiver Requests

In September, the SEC retuned its approach to considering settlement offers for enforcement actions with related waiver requests. This new approach puts the SEC back on pitch with a stance it previously held from July 2019 until February 2021, which allowed it to consider both simultaneously.

Settlement agreements can benefit the SEC, investors, and entities involved in enforcement actions by providing quicker remedies, enhanced certainty, and reduced costs. But the SEC sometimes places requirements in these settlements that can have significant collateral effects on an entity’s operations, such as losing well-known seasoned issuer (WKSI) status, statutory safe harbors for forward-looking statements, Regulation D exemptions for private offerings, and the ability to serve in various capacities for certain SEC-regulated entities.

The SEC is willing in many cases to waive fully, or partially, these consequences, and parties seeking settlement offers often request such waivers concurrently with their settlement offers. Resolution of both the waiver and settlement agreement is often critical to resolving an enforcement action by settlement. Previously, the SEC's tune was that it had to consider these settlement offers and waivers separately, since they are reviewed by different SEC divisions. But the current SEC thinks this reasoning is off-key, since treating a related settlement offer and waiver request as two separate events can add complexity to the decision, and undermine factors that lead to appropriate settlements.

The SEC’s new tune allows it to consider a settlement offer and related waiver request together. In this way, the SEC can consider both with all the facts, conduct, and consequences relevant to both issues, and with the analysis and advice of all the relevant divisions. The SEC can thus better offer settlements and waivers that promote its public policy mandates and provide comprehensive settlements that are in the
best interests of investors. But, the SEC noted, it still reserves the option to play the old tune and consider each request separately where it deems advisable.