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In a prior blog we discussed a Regulation D bad actor waiver granted to Oppenheimer & Co. that imposed conditions on the receipt of the waiver.  The waiver provided “Oppenheimer will comply with the conditions stated in its December 10, 2014 waiver request letter, including that it will retain a law firm to review its policies and procedures relating to Rule 506 offerings, and that it will adopt improvements or changes, both as private placement agent in its investment banking business and as issuer and as compensated solicitor in its wealth management business. Oppenheimer’s waiver is also conditioned upon its completing firm wide training for all registered persons on compliance with Rule 506 of Regulation D.”

The waiver request letter can be found here.  The commitments made in the waiver request letter do not appear to be toothless.  Among other things, it provides:

  • Within 30 days after the issuance of the Rule 506(d) waiver, Oppenheimer will engage a nationally recognized law firm with significant expertise in Rule 506 offerings (the “Law Firm”), not unacceptable to the Division of Corporation Finance, to review Oppenheimer’s policies and procedures relating to Rule 506 offerings with respect to both its activities as private placement agent in its investment banking business as well as its activities as issuer and as compensated solicitor in its wealth management business -the implementation of those policies and procedures, and compliance with those policies and procedures.
  • The report will not be privileged and will be provided to the Division of Corporation Finance.
  • Within 15 days after the conclusion of the discussion and evaluation by Oppenheimer and the Law Firm, Oppenheimer shall require that the Law Firm inform Oppenheimer and the Division in writing of the Law Firm’s final determination concerning any recommendation that Oppenheimer considers to be unduly burdensome, impractical, or inappropriate. Oppenheimer shall abide by the determinations of the Law Firm. Oppenheimer will adopt and implement all of the recommendations that the Law Firm deems appropriate within 12 months after the date of the report.
  • After the 12-month period (or 18 months after the issuance of the Rule 506(d) waiver), Oppenheimer will engage the Law Firm to review Oppenheimer’s compliance with the Law Firm’s recommendations to ensure that all changes in or improvements to Oppenheimer’s policies and procedures have been fully implemented. The Law Firm will have 6 months to complete its review and submit a written and dated report of its findings to Oppenheimer. Such report will not be privileged and will be provided to the Division of Corporation Finance.

Subsequently, Commissioners Luis A. Aguilar and Kara M. Stein issued a dissent to the grant of the waiver to Oppenheimer.  According to the Commissioners, the conditions in this bad actor waiver lack teeth because at least three critical components are missing:

  • First and foremost, there is no legally enforceable requirement that the law firm hired to review Oppenheimer’s policies and procedures for ensuring compliance with Rule 506 will be qualified and independent.
  • Second, there is no requirement for even the most cursory involvement in this compliance review process at the top levels of the firm. The firm’s senior management need not review the report prepared by the law firm, much less vouch for its accuracy.
  • And third, there is no requirement for the firm to return to the Commission at any point to demonstrate that it has complied with the federal securities laws and that continuing the waiver from disqualification is, in fact, warranted.

Then the politicians jumped into the ring.  Congresswoman Maxine Waters (D-CA), Ranking Member of the Financial Services Committee, issued a press release which said “It was my hope that the previous temporary, conditional waiver provided by the SEC  . . . marked a turning point in the Commission’s waiver process. However, today’s decision makes clear that the sanctions that Congress has provided for bad actors are meaningless. That is why I will be working with my Democratic colleagues to craft a legislative solution that sends a strong message to the markets that wrongdoers like Oppenheimer will be sufficiently held accountable for their misdeeds.”

In June of 2014, Waters authored an amendment that would have prohibited the SEC from granting certain waivers to firms that have, within the past three years, been convicted of certain felonies or misdemeanors or been determined to have violated anti-fraud provisions of the securities laws. Specifically, the amendment would have barred the SEC from granting waivers for companies enjoying “Well-Known Seasoned Issuer” (WKSI) status, another special benefit that allows companies to bring securities to market without first receiving the scrutiny of SEC staff.  The measure was defeated.


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