On March 12, 2014, the SEC’s Division of Corporation Finance (Corp Fin) issued a Revised Statement on Well-Known Seasoned Issuer Waivers (the Revised Statement).
Well-Known Seasoned Issuers, or WKSIs, benefit from a number of communications and registration rules that are significantly more flexible than the rules that apply to non-WKSIs, including most notably the ability to file a shelf registration statement that becomes effective automatically upon filing. An issuer that has violated (or is subject to certain orders or decrees relating to) the anti-fraud provisions of the federal securities laws or that is subject to certain criminal convictions, however, will be deemed an “ineligible issuer” and will lose its WKSI status (though not necessarily its ability to file a non-“automatic” shelf registration statement). Corp Fin’s Director has the authority to waive an issuer’s ineligible status “upon a showing of good cause, that it is not necessary under the circumstances that the issuer be considered an ineligible issuer.” Such waivers are commonly referred to as “WKSI waivers.”
Corp Fin previously issued a Statement on Well-Known Seasoned Issuer Waivers on July 8, 2011 (the Original Statement). The Original Statement provided guidance on what may constitute a “showing of good cause” when analyzing an ineligible issuer’s WKSI waiver request, and outlined the general analytical framework that Corp Fin can be expected to follow when considering whether to grant a WKSI waiver request. The Revised Statement updates and further refines the Original Statement.
The Revised Statement takes a somewhat more nuanced approach to the WKSI waiver analysis than did the Original Statement. Whereas the Original Statement set forth two “threshold factors” that would often be dispositive of a WKSI waiver request – including whether the anti-fraud violation related to the issuer’s own disclosures about itself (for example, in its periodic reports) and whether the violation was scienter-based – under the Revised Statement, these considerations are viewed as important factors in Corp Fin’s analysis but they are not necessarily dispositive. The Revised Statement also clarifies various other factors the Division will consider in determining whether to grant a WKSI waiver.
In addition, the Revised Statement affirmatively establishes that the burden falls on the issuer to demonstrate that a WKSI waiver request should be granted. It also expands the scope of Corp Fin’s analytical framework to include WKSI waiver requests where the issuer’s ineligibility resulted from certain criminal convictions (including, among others, convictions arising out of certain securities activities or transactions and certain convictions involving fraud or dishonesty) that were not addressed in the Original Statement.
It appears unlikely that the Revised Statement will significantly affect Corp Fin’s analysis of most WKSI waiver requests, as both the Original Statement and the Revised Statement emphasize that Corp Fin will focus on how the issuer’s conduct relates to the reliability of its current and future disclosures and what steps the issuer has taken to remediate any deficiencies in its public disclosures and reporting.
Given that the Division has moved away from a more categorical approach to its analysis of WKSI waiver requests, however, the Revised Statement will likely serve to raise the bar on the level of analysis and advocacy that an issuer is expected to present when requesting a WKSI waiver.