Last month, Representative Maxine Waters, Chair of the House Financial Services Committee, introduced a discussion draft of the “Bad Actor Disqualification Act of 2019” (the “Proposed Act”). Similar to proposed legislation Rep. Waters introduced in 2015 and 2017, the effect of the Proposed Act, if passed, would be to dramatically increase the burdens on institutions seeking waivers from disqualifications under the federal securities laws, including those for Well-Known Seasoned Issuers (“WKSI”), certain exemptions from registering securities offerings, and protection from fraud claims predicated on forward-looking statements. Indeed—given that the Proposed Act would require that all waiver applications be open to public comment and hearing and vote by the Securities and Exchange Commission (“Commission” or “SEC”), and that the Commission be barred from considering the “direct costs” of a denial to the applicant, but rather only the interests of the public, investors, and market integrity—the effect may be to essentially eliminate waiver applications and grants in all but the most severe cases. The Proposed Act targets “the largest financial institutions on Wall Street,” which, unsurprisingly given their business models, request and receive a disproportionate share of waivers. However, by its terms the Proposed Act applies more broadly to all issuers and is not limited to financial institutions.
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