SEC Chair Jay Clayton highlighted the benefits of settlement agreements and announced a change in the agency's approach to contemporaneous settlement offers and waiver requests.
In a public statement, Mr. Clayton observed that pursuing a settlement agreement that provides certainty to the settling parties can be complicated, in large part due to the collateral disqualifications that settling parties can face as a result of the terms of a settlement. While the SEC may grant waivers of these disqualifications in appropriate circumstances, he said, it has been SEC practice to consider settlement offers and related waiver requests "almost exclusively on a segregated basis." He concluded that the practice of separately considering settlement offers and related waiver requests "may not produce the best outcome for investors in all circumstances."
Accordingly, Mr. Clayton clarified that a settling entity may ask the agency to consider an offer of settlement that addresses both (i) the underlying enforcement action and (ii) any relevant collateral disqualifications. He announced a new approach explaining: "[t]o be more specific and to discuss the issue in context, 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."
He added that the SEC is under no obligation to accept any offer of settlement and may reject a simultaneous settlement offer and waiver request based on form alone. Mr. Clayton stated that, in situations where a settlement offer is accepted but a related waiver request is denied, the settling party will have five business days to decide whether it wants to move forward with the settlement offer accepted by the SEC.
Mr. Clayton's statement also discussed the factors that typically motivate "appropriate settlements," including the "importance of promptly remedying harm to investors," and encouraged settling parties to keep this perspective in mind and "be flexible and creative to maximize the remedial effects of proposed settlements."
Commentary / Kyle DeYoung
Chairman Clayton's statement marks a significant - and welcome - change to the SEC's practice related to settlement offers. As a practical matter, the statement eliminates the SEC's prohibition against making settlement offers contingent on a waiver request being granted. This change will provide firms trying to navigate settlement negotiations with additional certainty regarding the potential collateral consequences resulting from a potential settlement and may help to simplify the settlement process in a significant number of cases.
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