Tougher measures for SEC ‘bad actors’ planned

The Security and Exchange Commission’s bad actor rules could be toughened following a legal proposal by US Congresswoman Maxine Waters.

Waters’ Bad Actor Disqualification Act of 2017 would make it harder for financial firms or professionals criminally convicted under securities law to obtain a waiver of their disqualification.

Under the proposed additions: the waiver process would be conducted at SEC, rather than staff, level; the commission would apply a public interest, investor protection and market integrity test to their decision; they would receive public comment on whether a particular waiver should be granted or denied; and SEC staff would have to publicly record all waiver requests and create a public database of all disqualified bad actors.

Democrats on the US House of Representatives’ Financial Services Committee believe current waiver rules are too lenient.

“The SEC has granted waivers on a seemingly automatic basis and has done so disproportionately for large financial firms, leading to the public perception that such institutions may be ‘too-big-to-bar,’” they said in documents supporting the proposed act.

The bad actor rules, implemented in 2014, disqualify private funds from using a ‘safe harbor’ available under Rule 506 of Regulation D of the Securities Act if any of the fund’s senior professionals, significant stakeholders or placement agents have been convicted of a felony or fraud in connection with the selling of securities.