An SEC commissioner does the right thing, loudly


Kara Stein, one of the newest members of the Securities and Exchange Commission, has issued a must-read public statement explaining a dissenting vote she cast that goes to the heart of the debate over how to punish too-big-to-fail financial institutions that repeatedly break the law.

Last week, per its usual practice, the SEC approved a waiver to let Royal Bank of Scotland Group Plc continue doing business as usual. It did so despite the recent criminal conviction of the bank’s Japanese subsidiary for manipulating the London interbank offered rate, along with a deferred-prosecution agreement for the parent company, which paid a $100 million fine. The SEC vote was 3-2, with dissenting votes by Stein and Commissioner Luis Aguilar. At least on paper, fraud violations, whether criminal or civil, normally should result in the disqualification of companies as “well-known seasoned issuers,” a designation that allows companies to speed up the process for registering their securities offerings. However, the SEC’s routine practice over the years has been to grant waivers.

Stein, who joined the SEC last August, is fed up with this. “I fear that the commission’s action to waive our own automatic disqualification provisions arising from RBS’s criminal misconduct may have enshrined a new policy — that some firms are just too big to bar,” Stein wrote. She continued:

“Our website is replete with waiver after waiver for the largest financial institutions. Some large firms have received well over a dozen waivers of one sort or the other over the past several years. One large financial firm alone, in the last 10 years, has received over 22 different waivers — often making the argument that it has a ‘strong record of compliance with federal securities laws.’ 

Since 2010, the Commission has granted at least 30 WKSI waivers. Twenty-nine of them went to large financial institutions and broker-dealers. In many cases, these issuers are receiving their second, third, and even fourth WKSI waiver in less than four years.

It is true that large financial institutions may have vast operations and thousands of employees, making certain types of civil or even criminal misconduct statistically more likely. However, their size and complexity should not insulate them from the same regulatory consequences that other issuers must bear. The kind of reasoning that is used to support waivers in this context has led the Commission, by inches and degrees, to where it is today, almost reflexively granting waivers of all types, and most often to large financial institutions.

Last Friday’s Order exemplifies this problem.

If we are going to abrogate our own automatic disqualification provision on these facts, then we should consider discarding these disqualification and bad actor provisions entirely, along with the pretense that they have any real meaning.

It will be of great interest to see how the chairman of the SEC, Mary Jo White, and the other commissioners who voted for the waiver — Dan Gallagher and Michael Piwowar — explain the reasons for their votes. And I hope members of Congress who oversee the SEC will seek detailed explanations from them.

So far, the SEC hasn’t released any public statements about the vote from Aguilar or any other commissioners. White had promised to bring a new tone at the top to the SEC, which long has gone easy on repeat offenders. Stein should be commended for pushing her to follow through on that pledge.

Jonathan Weil is a Bloomberg News columnist.

© 2014, Bloomberg News

Read more From Our Inbox stories from the Miami Herald

  • After plane horror, Europe must stand up to Putin

    Vladimir Putin has become a global menace.

  • Blue-state disgrace

    Immigration is a complex problem. So is the long-term question of how the United States should handle the influx of tens of thousands of children from Central America. Beyond the legal mandates, we owe them basic human decency. On the other hand, to say that they should all simply stay here for good begs big questions about encouraging more children to make this journey, and the rights of all the people abroad who are waiting their turn in line. Unless you believe in open borders, it’s all thorny. What seems right for an individual child can seem wrong systemwide.

  • Moon landing 45 years ago brought us together

    It was, after all, only a boot-crunching dust. You wouldn’t think the sight would affect so many or change so much.

Miami Herald

Join the

The Miami Herald is pleased to provide this opportunity to share information, experiences and observations about what's in the news. Some of the comments may be reprinted elsewhere on the site or in the newspaper. We encourage lively, open debate on the issues of the day, and ask that you refrain from profanity, hate speech, personal comments and remarks that are off point. Thank you for taking the time to offer your thoughts.

The Miami Herald uses Facebook's commenting system. You need to log in with a Facebook account in order to comment. If you have questions about commenting with your Facebook account, click here.

Have a news tip? You can send it anonymously. Click here to send us your tip - or - consider joining the Public Insight Network and become a source for The Miami Herald and el Nuevo Herald.

Hide Comments

This affects comments on all stories.

Cancel OK

  • Marketplace

Today's Circulars

  • Quick Job Search

Enter Keyword(s) Enter City Select a State Select a Category