Risk Management

SEC Commissioner Praises “Bad Actor” Waiver

Instead of being banned from private securities offerings, Bank of America will hire an outside consultant to monitor and report on its behavior.
Matthew HellerDecember 5, 2014

A regulatory waiver that allows Bank of America to continue selling shares in hedge funds and other private offerings is a “breakthrough” in the way the U.S. Securities and Exchange Commission handles “bad actors,” according to a commission member.

Under the SEC’s “bad actor” rule, BofA faced a five-year ban from selling private offerings after it reached a record $16.65 billion fraud settlement with the U.S. government. The bank admitted violating securities laws by misleading investors who bought troubled mortgage-backed securities that soured during the financial crisis.

But following a lengthy internal debate, the SEC last week said it would waive the ban for 30 months in exchange for the bank hiring an outside consultant to monitor and report on its behavior. BofA will have to request additional relief from the government to avoid triggering the sales restrictions for the remaining 30 months of the ban.

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In a speech Thursday, Reuters reports, Commissioner Kara Stein said such conditions as requiring the bank to hire a compliance consultant will help “focus and empower” company management to change the corporate culture.

“This approach represents a breakthrough in the commission’s method of handling waivers, and I hope to see more of this and other thoughtful approaches in the future,” Stein told the Consumer Federation of America’s financial services conference.

According to the Wall Street Journal, Stein and the other Democratic commissioner, Luis Aguilar, had initially balked at granting the waiver due to concerns the SEC had been too lenient on financial firms that repeatedly violate securities laws. She vigorously dissented in April from a waiver that was granted to the Royal Bank of Scotland Group after one of its units pleaded guilty to manipulating the London InterBank Offered Rate.

The Democrats’ concerns “upended a process in which staff have historically granted the waivers as long as the banks have taken certain ‘remedial’ steps, such as firing employees responsible for the misconduct,” the Wall Street Journal noted.

Stein explained Thursday that BofA’s limited conditional waiver differed from other types of waiver because it imposed more obligations on the bank.

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