Certain enforcement measures or findings associated with violations of securities laws constitute “disqualifying events.” Parties subject to a “disqualifying event” are commonly referred to as “bad actors” and are automatically disqualified from key exemptions and other opportunities available under the securities laws. For example, businesses looking to raise private capital pursuant to key exemptions from the securities registration laws would not be able to associate with a “bad actor” in key capacities.
Importantly, the securities laws allow relevant regulators to issue waivers from certain disqualifications. These waivers serve a significant investor protection function because they support maintenance of broader disqualification standards by excluding parties that meet the technical disqualification terms but are not substantively “bad actors.”
At various times, the SEC has considered parties’ waiver requests at the same time as efforts to settle underlying enforcement actions. Most recently, then Chair Jay Clayton had afforded parties this opportunity in 2019. However, in 2021, the acting SEC Chair announced that SEC’s Enforcement Division would not recommend settlements conditioned on waiver grants.
Companies and persons facing SEC enforcement were faced with uncertainty as to the collateral consequences resulting from agreeing to settle with the SEC. As a result, settlement negotiations became saddled with the loss of clarity, and the change in position created inefficiencies for businesses and the SEC as well. Moreover, there is a sense of equity in ensuring that a party has a more complete understanding of the collateral consequences associated with a settlement. After all there are always variables associated with settling a SEC matter that cannot be measured with complete precision (e.g., impact on goodwill, future contractual limitations, etc.). But the effect of existing laws should not be one of them.
Current SEC Chair Paul Atkins announced last week that the SEC Commissioners will reinstitute simultaneous consideration of waiver requests with underlying settlement proposals.[i]
Still, a settling party must account for the possibility that the Commissioners may reject a waiver request recommended by the Enforcement staff in connection with a settlement. Parties should carefully weigh the value and likelihood of a waiver versus the value and likelihood of other terms (e.g., fine amount, etc.). Whether or not a waiver request is discussed simultaneously, practitioners should once again account for waiver requests in the settlement strategy when the Enforcement Division’s settlement demands invoke one or more of the disqualifying events.
[i] https://www.sec.gov/newsroom/speeches-statements/atkins-2025-simultaneous-consideration-settlement