As we discussed here, on March 12, 2014, the Division of Corporation Finance of the Securities and Exchange Commission (SEC) revised its previous guidance on granting waivers to well-known seasoned issuers (WKSIs) to continue to qualify as WKSIs despite otherwise disqualifying misconduct. Interestingly, on April 24, 2014, the SEC further updated its revised guidance, as reflected here. Any issuer preparing a WKSI waiver request must be sure to base its request on the latest guidance, which seems to indicate that obtaining a WKSI waiver may be more difficult going forward than in the past.
Specifically, the SEC expanded its description of the framework it will use for determining if a WKSI waiver request establishes a showing of good cause. The SEC added the following language to its guidance, which indicates that the bar has been raised for obtaining a waiver if the underlying cause of the ineligibility was a criminal conviction or a scienter based disclosure violation: “Where there is a criminal conviction or a scienter based violation involving disclosure for which the issuer or any of its subsidiaries was responsible, the issuer's burden to show good cause that a waiver is justified would be significantly greater.”
In addition, the SEC revised its guidance regarding the consideration of the impact the denial of a waiver request would have, by broadening the elements it may consider. The guidance now states that “We will also look at any effects that the issuer’s loss of WKSI status could have for the markets as a whole and the investing public in considering whether a waiver would be consistent with the public interest and the protection of investors.” In contrast, in the March guidance, the review of the effects such loss could have on the markets as a whole and the investing public was qualified by the following language: “in light of the issuer’s significance to the markets and its connectedness to other market participants.” This language has been removed from the guidance indicating that the SEC may take a broader approach to reviewing the effects of an issuer’s loss of WKSI status.
The issuance of this most recent WKSI waiver guidance appears to reflect the ongoing debate within the SEC regarding the frequency with which WKSI waivers and other accommodations are granted to many of the world’s largest financial institutions, which debate has recently gone public (see here and here). In light of this enhanced public scrutiny, those seeking WKSI waivers must be even more mindful of the SEC’s revised guidance in preparing their WKSI waiver requests.