SIFMA Managing Director for Public Policy and Advocacy Lisa J. Bleier testified before the Nevada Secretary of State - Securities…
Putting Investors First: Proposals to Strengthen Enforcement Against Securities Laws Violators
House Financial Services Subcommittee on Investor Protection, Entrepreneurship and Capital Markets
Hearing entitled “Putting Investors First: Proposals to Strengthen Enforcement Against Securities Laws Violators”
June 19, 2019
The Securities Industry and Financial Markets Association (“SIFMA”)1 appreciates the opportunity to provide our input on several of the discussion drafts of bills before the U.S. House of Representatives, House Financial Services Subcommittee on Investor Protection, Entrepreneurship and Capital Markets hearing entitled “Putting Investors First: Proposals to Strengthen Enforcement Against Securities Law Violators.”
“The Bad Actor Disqualification Act” would make changes to the Securities and Exchange Commission’s (“SEC” or “Commission”) process for waiving the automatic disqualifications provisions in the securities laws. Absent waivers, such automatic disqualification provisions – which do not exist in any other country’s securities laws – can have a crippling effect on financial institutions, their clients and employees, and the broader markets.
We have a common goal of maintaining trust in the financial system by targeting and disqualifying bad actors. However, since the financial crisis, the debate has focused on whether large financial institutions were disproportionately granted waivers and were “too big to bar.”2 Unfortunately, this has led to misconceptions about the purpose waivers serve, the waiver process, the ability of the Commission and its staff to assess waiver applications, and the waiver applicants themselves.3 It has been said that large financial institutions use their corporate structures to insulate themselves from disqualifications; however, the opposite is true.4 Congress intended for disqualifications to be overly broad but created waivers to give the Commission discretion to address their unintended effects.5 President Obama’s appointee, former SEC Chairwoman Mary Jo White, addressing the “too big to bar” debate, said it best: “(i)n making our decisions, we should and do treat large financial institutions exactly the same as any other firm or person when considering whether a waiver is appropriate, no better, and no worse.”6 Unfortunately, some view the waiver process differently – as a means to deny market participation under the securities laws, such as the WKSI process which provides issuers with a critical means of access to the capital markets, for misconduct, even if, as is very often the case, the misconduct is unrelated to the benefit enjoyed. This turns the waiver process into an extension of the enforcement process – to impose additional sanctions. This is not the purpose of the waiver process.