In the securities world, being a Well-Known Seasoned Issuer (WKSI) clearly has certain advantages with the Securities and Exchange Commission (SEC). If a firm meets the requirements to gain WKSI status, one major benefit is reduced SEC oversight.  For example, the company qualifies for automatic shelf registrations, which allow companies to raise money immediately from securities offerings without having to wait for the SEC to review the offering documents.  WKSI status should be a reward. Only those meeting the requirements and that have “good behavior” are supposed to be able to avail themselves of the benefits. In fact, under federal securities laws and regulations, a felony criminal conviction or violation of civil anti-fraud laws results in an automatic loss of WKSI status. At least, that’s the way it’s supposed to work.

Many of our readers may recall the London Interbank Offered Rate (LIBOR) scandal in which numerous banks pleaded guilty to a scheme to manipulate interest rates. As part of that scandal, the Royal Bank of Scotland Group, plc (RBS) pleaded guilty to manipulating the LIBOR and felony wire fraud. RBS and its subsidiaries paid criminal penalties of approximately $612 million for the part it played in the scheme.  Those criminal pleas should also result in an automatic denial of WKSI status, but as Commissioner Kara Stein noted in her dissent to a recent decision it has become commonplace for the SEC to grant waivers of the disqualification. That’s rather difficult to understand or justify.

In a 3-2 decision on April 25, 2014, the SEC granted RBS a waiver, allowing RBS to maintain WKSI status.  According to Commissioner Stein, the decision to grant the waiver “rests largely upon the notion that that the triggering conduct is insignificant when considered in the context of a large financial institution with global operations.”  This reasoning ultimately led the Commissioner to note:

I fear that the Commission’s action to waive our own automatic disqualification provisions arising from RBS’s criminal misconduct may have enshrined our new police – that some firms are just too big to bar.

Commissioner Stein backed up her fear by providing some very surprising statistics:

  • Some large firms have received more than a dozen waivers of some sort or another;
  • One large firm has received 22 different waivers in 10 years and still makes the argument that it “has a ‘strong record of compliance with federal securities laws;”
  • In 2013 Congress adopted a “bad actor” provision for Rule 506, but the SEC has already granted five waivers – including one to RBS;
  • Since 2010, the SEC has granted at least 30 WKSI waivers – 29 to large financial institutions and broker-dealers.  In many cases, the issuers are receiving their second, third, and even fourth WKSI waiver in less than four years.

It should be noted, however, that RBS is not the only large financial institution to be granted such a waiver. Others include Nomura Co., Fifth Third Bancorp, UBS AG, JP Morgan Chase & Co., Wells Fargo & Co., Morgan Stanley, and Credit Suisse AG. These appear on a list found on the SEC’s website. Why does all of this matter?  In sum, and as Commissioner Stein concluded:

This should be simple.  We have a rule that confers a special benefit to issuers that have a good track record.  And we have a rule that calls for automatically rescinding that benefit when the issuer misbehaves.

Instead of following those simple rules, the SEC opened the door to make its own laws and regulations unenforceable. As Columbia Law Professor John Coffee observed:

At a time when the rest of the federal government is beginning to get tough on banks that commit crimes, the SEC is in effect saying that it will not let a little thing like a federal felony conviction inconvenience a major bank.

The waiver is tantamount to “two different systems of justice – one for everyone but banks and another for banks.”  If you need more information on this subject contact Rebecca Gilliland, a lawyer in our firm’s Consumer Fraud Section, at 800-898-2034 or by email at

Sources: Corporate Crime Reporter and

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