US securities regulators will release new guidance on how they decide whether a company should retain leeway in raising capital, after criticism that such waivers are too often rubber-stamped for banks that have broken the law. Elizabeth Murphy, an associate director for the Securities and Exchange Commission's Corporation Finance division, revealed the agency's plans Saturday at the Practising Law Institute's annual SEC Speaks conference.
Waivers have come under fire since last year, after the SEC's two Democratic Commissioners started to vocally oppose granting them to a number of large banks that broke the law. In April, SEC Commissioner Kara Stein issued a scathing dissent over the granting of one waiver to the Royal Bank of Scotland, after one of the bank's units pleaded guilty to manipulating the Libor benchmark.
Companies that violate criminal laws or some civil laws could lose certain regulatory privileges under the federal securities rules. One such privilege is the ability to be a "well-known seasoned issuer" or WKSI - a status that lets a company continually raise capital more readily without prior SEC approval. Another privilege, which is widely viewed as the most important for large US companies and banks, is an exemption under "Regulation D Rule 506."
This rule lets companies raise an unlimited amount of private capital without being required to register it with the SEC. Stein and her colleague, Commissioner Luis Aguilar, have accused the SEC of too often granting these waivers to repeat offenders, in a policy Stein dubbed "too big to bar." They have publicly dissented on approving a number of them, and have also sought to attach more strings to the ones the SEC has approved, such as requiring companies to hire independent consultants to monitor compliance.
Currently, the SEC has public guidance that outlines what factors it weighs when it decides whether to grant a "WKSI" waiver to companies. That guidance requires companies that break certain laws to show "good cause" for why a waiver should be granted, and the SEC also considers how the violations impacted their public disclosure to investors. Murphy said Saturday the SEC now plans to release similar guidance for granting Regulation D waivers, as well as a second type of waiver for "Regulation A" - a provision rarely used that lets companies publicly raise up to $5 million.
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