United States: SEC To Allow Settling Parties To Submit Simultaneous Settlement Offers And Applications For Waiver From Disqualifications

On July 3, SEC Chairman Jay Clayton issued a statement signaling a policy change in SEC settlements and the consideration of applications for waiver of collateral consequences flowing from those settlements, such as the loss of certain significant procedural advantages in (or even outright exemption from) the securities registration process.[1] In practice, this change could both streamline the process of settling enforcement actions with the SEC and provide additional certainty to settling entities, which, under the current regime, must decide whether to settle a matter before completing and knowing the outcome of negotiations over waivers.

In his statement, Chairman Clayton noted a series of factors that both drive and complicate the SEC's ability to settle enforcement actions, including the cost of litigation, the SEC's willingness to litigate quickly cases where it cannot settle, and the SEC's and settling entities' ability to craft a settlement that will sufficiently protect investors. However, the bulk of the Chairman's statement focused on the fact that enforcement settlements may have significant collateral consequences for entities. These include loss of well-known seasoned issuer ("WKSI") status and the significant procedural advantages WKSI status provides in the registration process, loss of certain exemptions from registration for smaller offerings or offerings by certain types of issuers, as well as protection for forward-looking statements from fraud claims. Settling parties thus need to apply to the SEC or the Divisions of Corporation Finance or Investment Management, acting pursuant to delegated authority, for waivers of these collateral consequences. However, the SEC has traditionally decoupled consideration of settlement offers from waiver applications, which, as Chairman Clayton noted, "can add complexity" and "substantially complicate and lengthen the negotiating process, which . . . may not lead to the best outcome for investors and unnecessarily tap Commission resources."

Thus, Chairman Clayton announced that going forward settling entities will be able to simultaneously submit offers of settlement and waiver applications for Commission consideration and approval. Under the new regime, "an offer of settlement that includes a simultaneous waiver request negotiated with all relevant divisions (e.g., Enforcement, Corporation Finance, Investment Management) will be presented to, and considered by, the Commission as a single recommendation from the staff." Chairman Clayton noted that such simultaneous submissions will allow the Commission to consider settlement offerings holistically to determine whether on balance the resolution "best serves investors and the Commission's mission more generally."[2]

Importantly, if somewhat unsurprisingly, the statement notes that the Commission is not obligated to accept either or both of the settlement offer and the waiver request—effectively allowing it to decouple those applications should it wish to do so. Specifically, should the Commission accept a settlement offer, but reject a waiver application "in whole or in part, the proposed defendant would need to promptly notify the staff (typically within a matter of five business days) of its agreement to move forward with that portion of the settlement offer that the Commission accepted." Chairman Clayton also noted that should settling entities fail to "promptly" notify the staff of their agreement to the remaining terms, such terms "may no longer be available and a litigated proceeding may follow."

Generally speaking, Chairman Clayton's statement recognizes the reality that collateral consequences can be an important ("extremely significant" in the Chairman's words) component of any enforcement settlement.[3] Depending on the business at issue, the loss of WKSI status or of available registration exemptions (including registration exemptions for smaller offerings or offerings by business development companies or small business investment companies) or the loss of protection from private securities fraud liability related to forward-looking statements, can dramatically increase costs associated with accessing the securities markets. Indeed, with respect to larger entities, and as the Chairman noted, such automatic disqualifications may negatively affect a business line of the parent company that is wholly unrelated to the misconduct at issue.[4]

A few takeaways are apparent from the statement. First, the statement reflects an acknowledgment that waiver denials may not result in the best settlement for the Commission. As noted above, the statement recognizes that waivers can be a significant component of an enforcement action. Moreover, in the most extreme cases, entities may not be able to accept a settlement—one that would be in the Commission's interest—due to the serious nature of collateral consequences. Chairman Clayton's statement recognizes this: "[i]n other cases, in whole or in part, [collateral consequences may not be appropriate], including because other measures may more appropriately address the conduct at issue and related investor protection considerations." In other words, if considered holistically, the Commission may be better off obtaining other relief—such as injunctions or an independent compliance consultant—than rote application of collateral consequences where such consequences would not protect investors or appropriately deter future misconduct.

Second, a motivating factor behind the statement appears to be to bring enforcement actions to speedier conclusion. As things currently stand, entities negotiate a settlement in principle with the Enforcement Division (typically including negotiations with and presentations to staff members of varying seniority). Only once those terms are agreed (at least in principle) do defendants turn to seeking waivers from either or both of the Divisions of Corporation Finance or Investment Management (also typically entailing multiple opportunities for negotiation and presentation). The new system may allow all relevant stakeholders on the staff to negotiate more quickly with defendants to craft a complete settlement for Commission consideration. However, it remains to be seen whether discussions with the Divisions of Corporation Finance and Investment Management will begin early enough to speed things appreciably.

Third, the efficacy of the new proposal may turn on whether the Commission—as a practical matter—generally approves both the settlement and waiver components. There is reason to believe that this will be the case. First—despite some dissenting voices over the years[5]—the Commission approves the vast majority of recommendations placed before it by the staff. In any event, because the Commission has delegated authority, as a practical matter, the Divisions of Corporation Finance and Investment Management have the power to approve certain waiver applications without full Commission vote. However, these Divisions have been declining to exercise this delegated authority and have been submitting applications to the Commission or at least informally soliciting the Commission's view, likely because of the dissents and public criticism.

In the end, both staff and settling entities may well benefit from the new policy. Staff may be able to bring cases to a speedier conclusion, whereas defendants would be able to obtain certainty that their enforcement settlements—negotiated over many months—will not be scuttled last minute by business-ending collateral consequences. Perhaps most importantly for defendants, they will be able to know before finalizing the settlement whether they will be able to obtain the waiver. This increased certainty will likely be the most important benefit of the new policy.


[1] Jay Clayton, Statement Regarding Offers of Settlement (July 3, 2019), available at https://www.sec.gov/news/public-statement/clayton-statement-regarding-offers-settlement.

[2] Chairman Clayton noted that, in the past, the Commission has permitted such simultaneous settlement offers and waiver applications "often . . . framed as an offer of settlement contingent upon the receipt of a specified waiver," but that such a practice had since fallen out of use.

[3] Chairman Clayton noted that "[f]or example, remedies such as the imposition of an injunction against future violations of the antifraud provisions of the federal securities laws, or the requirement that an entity undertake to retain an independent compliance consultant, may subject the entity to collateral disqualifications that, as a practical matter, can prohibit the entity from continuing to conduct certain businesses."

[4] See our July 9, 2019 Alert Memorandum, "Proposed Bad Actor Disqualification Act of 2019 Would Severely Limit the Availability of Waivers for Institutions Entering into Settlements with the SEC and DOJ," available at https://client.clearygottlieb.com/51/1301/uploads/2019-07-09-proposed-bad-actor-disqualification-act-of-2019.pdf.

[5] See, e.g., Kara M. Stein, Dissenting Statement in the Matter of Deutsche Bank AG, Regarding WKSI (May 4, 2015), available at https://www.sec.gov/news/statement/dissenting-statement-deutsche-bank-ag-wksi.html; Kara M. Stein, Dissenting Statement in the Matter of The Royal Bank of Scotland Group, plc, Regarding Order under Rule 405 of the Securities Act of 1933, Granting a Waiver from Being an Ineligible Issuer (April 28, 2014), available at https://www.sec.gov/news/public-statement/2014-spch042814kms.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions