Recently, the Securities and Exchange Commission (SEC) issued an order in In re Roger T. Denha, Release No. 6872, 2025 WL 1091846 (Apr. 11, 2025) granting an application by a previously barred applicant to associate with an investment adviser. The order is significant because it stands in stark contrast to the SEC's position in prior cases. Most relevant, the SEC relaxed its legal standard for previously barred applicants seeking reinstatement. In what was once a seemingly insurmountable burden—the "extraordinary circumstances" test—the SEC's new approach creates an opportune time for prospective applicants seeking reinstatement. Thus, it is critical for individuals, firms or other stakeholders in the securities industry who may be affected by an SEC bar to engage experienced and knowledgeable counsel in preparing an application for reinstatement.
The SEC's Authority to Bar
The Securities Exchange Act of 1934 grants the SEC broad authority to exercise its enforcement powers by issuing "bars" for registrants who violated the federal securities laws. Most common, a bar is imposed as a follow-on to another related legal proceeding (i.e., a criminal conviction or an injunction in a civil enforcement action). The SEC may issue a (i) temporary bar or (ii) permanent or "unqualified" bar. A temporary bar specifically provides the time the applicant may reapply for reinstatement. In contrast, an unqualified bar is effectively permanent and does not provide a time frame for when an applicant may reapply. In 1994, the SEC issued guidance that an unqualified bar is a "[p]articulary severe sanction [that] is reserved for egregious cases" and that, "absent extraordinary circumstances, a person subject to an unqualified bar will be unable to establish that it is in the public interest to permit reentry to the securities industry." In re Unqualified Bar Orders, Release No. 34720, 1994 WL 544424 (Sept. 26, 1994). The extraordinary circumstances test was subsequently affirmed in In re Victor Teicher, Release No. 58789, 2008 WL 4587535 (Oct. 15, 2008). Nevertheless, because a temporary bar only permits a time frame when an applicant may reapply (it is not an expiration of the bar), there are no practical distinctions between a temporary bar and an unqualified bar. Thus, both bars have similar significant consequences for those subject to them.
Legal Standards for Reinstatement
SEC Rule of Practice 201.193 governs all applications for persons barred by the SEC from association with a broker, dealer, municipal securities dealer, government securities broker, government securities dealer, investment adviser, investment company or transfer agent. Importantly, Rule 201.193 further provides the standard for which an application may be granted: "The applicant shall make a showing satisfactory to the [SEC] that the proposed association would be consistent with the public interest." (Emphasis added.) In determining whether reinstatement would be in the public interest, the SEC considers:
(i) The time period since the imposition of the bar; (ii) Any restitution or similar action taken by the applicant to recompense any person injured by the misconduct that resulted in the bar; (iii) The applicant's compliance with the order imposing the bar; (iv) The applicant's employment during the period subsequent to imposition of the bar; (v) The capacity or position in which the applicant proposes to be associated; (vi) The manner and extent of supervision to be exercised over such applicant and, where applicable, by such applicant; (vii) Any relevant courses, seminars, examinations or other actions completed by the applicant subsequent to imposition of the bar to prepare for his or her return to the securities business; and (viii) Any other information material to the application.
Although compliance with the above factors does not guarantee reinstatement, an applicant should consider satisfying these factors a prerequisite for reinstatement.
Recent Developments
In reinstatement applications involving unqualified bars before In re Dehna, the SEC applied the extraordinary circumstances test. As such, the SEC presumptively concluded it was against the public interest to reinstate an individual who was previously subject to an unqualified bar. Specifically, the SEC adhered to its prior finding that, "[a]bsent extraordinary circumstances, a person subject to an unqualified bar will be unable to establish that it is in the public interest to permit reentry to the securities industry." In practice, the standard of extraordinary circumstances was almost impossible to meet. Thus, if an individual received an unqualified bar, it was effectively a permanent ban from the industry. However, In re Dehna changes that. The SEC granted Roger Denha's reinstatement application based on a "fact-intensive, individualized inquiry." Particularly important to the SEC was that a significant amount of time elapsed since the initial bar (six years), Denha timely paid disgorgement and a civil penalty, he had complied with the bar while it was in effect, while barred he performed charitable activities, and he demonstrated remorse.
In re Manish Singh, Release No. 102815, 2025 WL 1091664 (Apr. 10, 2025), provides another recent illustration of the SEC's new approach to applications for reinstatement. The applicant in this proceeding was subject to a penny stock bar, with the right to reapply after five years. Approximately eight years following imposition of the bar, the applicant was granted reinstatement. Consistent with In re Dehna, the SEC found that Manish Singh was in satisfactory compliance with all conditions of the bar. Ultimately, the SEC found that Singh's reentry into the securities industry was "[a]ppropriate and not adverse to public interest."
Moving Forward
In sum, the SEC's recent orders indicate the agency's willingness to not only consider but also grant applicants for reinstatement. As illustrated in both In re Dehna and In re Singh, it is critical for securities practitioners hoping to obtain reinstatement, at a minimum, to diligently comply with their bar orders and to be mindful of the enumerated factors in Rule 201.193. Accordingly, prospective applicants will benefit from the guidance of experienced counsel in not only preparing an application, but also in pursuing the necessary steps to position themselves for a future application.
For More Information
If you have any questions about this Alert, please contact Mary P. Hansen, Michael J. Rinaldi, Richard Chakejian, any of the attorneys in our White-Collar Criminal Defense, Corporate Investigations and Regulatory Compliance Group or the attorney in the firm with whom you are regularly in contact.
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