Risk & Compliance

Top Democrat Wants SEC to Crack Down on ‘Bad Actors’

The SEC has been granting disqualification waivers “automatically — and disproportionately for large financial firms,” says Rep. Maxine Waters.
Matthew HellerMarch 24, 2015
Top Democrat Wants SEC to Crack Down on ‘Bad Actors’

Rep. Maxine Waters, California Democrat, on Tuesday unveiled draft legislation that if passed would make it harder for the U.S. Securities and Exchange Commission to grant waivers of “bad actor” disqualifications, saying the review process needs to be more rigorous and transparent.

The waivers allow financial firms convicted of fraudulent activity to continue operating in the marketplace without being subjected to stricter oversight. In announcing her “Bad Actors Disqualification Act of 2015,” Waters said the SEC had been granting waivers “automatically — and disproportionately for large financial firms.”

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“I have been disappointed with the seemingly reflexive granting of waivers to bad actors, which can enshrine a policy of ‘too-big-to-bar,’” she said in a news release.

Maxine Waters

Rep. Maxine Waters

Waters, the top Democrat on the House Financial Services Committee, cited a recent study that found that between July 2003 and December 2014, the SEC disproportionately granted 82% of waivers to large financial firms.

In February, she and other Democrats criticized the SEC for giving a waiver to Oppenheimer & Co., weeks after it agreed to pay $20 million and admit to wrongdoing surrounding money laundering charges.

Under Waters’ draft bill, SEC commissioners, rather than staff, would decide whether to grant waivers and, in making that determination, would have to consider whether granting a waiver would be “in the public interest, protective of investors, and promote market integrity.”

The proposal also would provide the public a notice and comment period, as well as the opportunity to request a hearing on a waiver.

“By ensuring the SEC’s decisions are transparent and involve both the public and the Commissioners themselves, I hope this proposal sends a message to every financial institution that they can no longer expect to receive a waiver in the same manner as they were issued in the past,” Waters said.

Prospects for the legislation’s passage appear uncertain. Last year, Waters proposed amending a Republican financial deregulation bill by requiring that waivers be denied to bad actors who would benefit from the bill. The amendment was defeated on a party-line vote.