| WASHINGTON, April 29
WASHINGTON, April 29 U.S. Securities and
Exchange Commission member Daniel Gallagher on Tuesday waded
into a contentious debate at the agency over how it grants
certain regulatory waivers to public companies that break the
In a statement, the Republican SEC commissioner sharply
criticized some language that was quietly added on April 24 to a
policy governing how the SEC doles out waivers to companies with
criminal convictions or civil fraud liability.
Such waivers permit companies to retain their regulatory
status as a "well-known seasoned issuer", or WKSI - a tag that
allows companies to raise money immediately through securities
offerings without having to wait for SEC approval first.
The updated policy raises the bar for companies with
criminal convictions or intentional fraud liability to
demonstrate "good cause" for why the SEC should grant them a
waiver to retain their WKSI status.
In his statement, Gallagher called this change "troubling"
because it takes a "punishment-based" approach that could strip
a company of its WKSI status, even if the underlying bad conduct
did not affect the company's financial statements.
"Refusing to grant a waiver is not a step that we should
take lightly," he wrote.
The SEC's new policy came about in the wake of a internal
dispute among the SEC's five commissioners over whether to grant
a special WKSI waiver to the Royal Bank of Scotland Group Plc
On Monday, Gallagher's Democratic colleague, Kara Stein,
issued a statement lambasting the SEC for giving the bank the
waiver, even though one of its units previously pleaded guilty
to charges related to manipulation of the Libor benchmark
The waiver was approved in a narrow 3-2 vote, with Stein and
SEC Democratic Commissioner Luis Aguilar dissenting.
In her public dissent, Stein said she was dismayed that the
SEC routinely grants waivers to big banks that are repeat
offenders, issuing at least 30 WKSI waivers since 2010.
"I fear that the Commission's action to waive our own
automatic disqualification provisions arising from RBS's
criminal misconduct may have enshrined a new policy - that some
firms are just too big to bar," Stein wrote on Monday.
Gallagher's statement did not specifically cite her dissent,
but its content appeared to counter many of her claims.
In it, he questioned the idea of revoking WKSI waivers to
punish bad actors, noting that the criminal and civil
enforcement process is meant to address the underlying
"The question of whether to grant a WKSI waiver is, or at
least used to be, a dispassionate analysis, undertaken by the
technical experts in the Division of Corporation Finance,
separate and apart from the enforcement process," he said.
He also said it raises constitutional due process concerns
because automatically revoking a company's WKSI status would not
afford them a chance to contest the decision in the agency's
"We must have a robust waiver program to appropriately
distinguish between cases when disqualification is and is not
justified. Disqualification is justified...in circumstances
where the issuer's financial reporting cannot be trusted," he
The debate over how the agency should review WKSI waivers is
starting to spill over onto Capitol Hill.
Already, Massachusetts Democratic Senator Elizabeth Warren
has weighed in on the matter, saying in a statement that
granting automatic WKSI waivers to lawbreakers "sends a
"Big corporations should not get special treatment when
they break the law, and the SEC needs to learn from its past
failures in oversight," Warren added.
In addition, SEC Chair Mary Jo White was questioned about
the WKSI waiver spat during a hearing before a U.S. House of
Representatives panel on Tuesday.
White declined to specifically comment on the RBS decision,
but told lawmakers that the SEC applies policies concerning WKSI
waivers "faithfully and vigorously."
SEC spokesman John Nester declined to comment specifically
on Gallagher's remarks, which were issued after the hearing
(Reporting by Sarah N. Lynch; Editing by Ken Wills)