On October 23, Chairman Jay Clayton of the Securities and Exchange Commission and Chairman Heath P. Tarbert of the Commodity Futures Trading Commission issued a joint letter creating a one-year pilot program to formalize the practices between the Chairmen relating to CFTC orders that implicate the “bad actor” disqualification provisions of Regulations A and D under the Securities Act of 1933 (the SEC Disqualification Rules). Under the SEC Disqualification Rules, individuals or firms are disqualified from relying on certain exemptions from registration for securities offerings if certain triggering events occur, such as certain securities law violations or final orders issued by the CFTC in connection with certain enforcement proceedings.
However, the SEC Disqualification Rules also establish circumstances under which disqualification will not be triggered if the CFTC advises in writing that a disqualification is not a necessary consequence of a CFTC order. Through the joint letter, the Chairmen agree to use reasonable efforts to formalize and memorialize the coordination of their respective staffs with respect to CFTC orders that implicate the SEC’s Disqualification Rules. More specifically, the CFTC staff will provide notice to the SEC staff as soon as practicable if a CFTC order may involve the SEC Disqualification Rules, will share relevant information regarding the CFTC order, and will permit the SEC staff to comment on the potential for a waiver of automatic disqualification under the SEC Disqualification Rules. If the SEC staff fails to provide its view or comments within the timeframe stipulated in the letter, the CFTC will automatically provide language advising that disqualification should not arise as a consequence of the CFTC order.
The pilot program is currently set to expire on October 23, 2021, although Chairman Clayton, Chairman Tarbert or a future chair may opt to terminate the pilot program unilaterally at any time before the expiration date.
The joint letter is available here.