Oppenheimer & Company has looked the part of a financial industry recidivist, its rap sheet replete with at least 30 regulatory actions over the last decade.
On Wednesday, on the heels of the company’s latest infraction, some regulators questioned whether the government had enabled a cycle of misbehavior.
Kara M. Stein and Luis A. Aguilar, Democratic members of the Securities and Exchange Commission, criticized their own agency for allowing Oppenheimer to avoid certain repercussions for its behavior. Although Oppenheimer settled a case last week that set off a so-called bad actor ban, which automatically disqualified it from most private offerings of securities, the S.E.C. issued a waiver from that ban.
Ms. Stein and Mr. Aguilar voted against the waiver. The commission’s three other members, including two Republicans and the chairwoman, Mary Jo White, voted to support it.
“Given the long record of broken promises, the commission must demand more accountability from this firm and its leadership,” Ms. Stein and Mr. Aguilar wrote in a dissent that was released on Wednesday. “The public deserves no less.”
Their dissent delivered the latest salvo in a fight over the S.E.C.’s waiver policy, a once-obscure debate that now hangs over most every enforcement case, often presenting an obstacle to settlement.
The issue has pitted the commission’s liberal wing, which has channeled a populist uproar over Wall Street misdeeds, against the two Republican commissioners. It also creates a conundrum for Ms. White, the deciding vote, whose reputation as a tough-on-crime former federal prosecutor helped her sail through Senate confirmation.
(Two people who spoke on the condition of anonymity said that under Ms. White, the commission rejects most requests for waivers. The S.E.C., however, does not record such data because many companies convey requests in an informal manner. The people spoke on condition of anonymity because they were not authorized to discuss the matter.)
Since joining the S.E.C. in 2013, Ms. Stein has voted against eight waivers the S.E.C. approved, including for financial giants like Citigroup and Credit Suisse. A case in which Ms. White was recused last year, a waiver involving Bank of America, led to a standoff that eventually yielded a compromise: a temporary waiver based on certain conditions.
At the time, that compromise seemed to offer a template for cases like Oppenheimer’s. And unlike Bank of America, Oppenheimer being banned from privately offered securities would not raise concerns about the health of the economy.
The S.E.C.’s division of corporation finance grants the waivers — subject to approval by the five commissioners — and is not required to assign its own punitive measures on top of enforcement fines.
In the Oppenheimer case, the S.E.C. imposed a $10 million penalty on the firm, a fairly significant sum for a company of its size. The S.E.C. further forced the company to hire an independent consultant to review its policies over a five-year period, saying the penalties “reflect the magnitude of Oppenheimer’s regulatory failures.”
The corporation finance team declined to uphold a ban, in part because of the extent of the punishments and the nature of Oppenheimer’s misconduct, according to one of the people who spoke on the condition of anonymity. The misconduct — the S.E.C. accused Oppenheimer of improperly selling penny stocks on behalf of customers, among other problems — was unrelated to the private offering of securities, the issue at stake in the waiver. It also did not reach the upper levels of Oppenheimer’s management.
Yet Oppenheimer, anticipating opposition to the waiver, proposed that it hire a “nationally recognized law firm with significant expertise” in private offerings to review the company’s compliance. The firm, it said, would be “not unacceptable to the Division of Corporation Finance.”
The division supported the plan, as did Ms. White and the two Republicans.
But Ms. Stein and Mr. Aguilar balked, arguing that the S.E.C. did not require Oppenheimer to hire a law firm that is “independent,” meaning one that has not previously worked for the company.
“The commission set a dangerous precedent by ignoring this sound approach in drafting the order in this case,” Ms. Stein and Mr. Aguilar wrote in their dissent. “We sought to have this rectified, but our concerns fell on deaf ears.”
The dissent also criticized the decision not to require the law firm to issue a report on its findings, or at least demonstrate to the S.E.C. that Oppenheimer’s compliance met industry standards.
“Given the firm’s recidivism, we should not blindly rely on what is essentially just another unconvincing promise to do better,” they said in the dissent, referring to the 30 actions since 2005.
In 2008, Oppenheimer paid $4.5 million in fines and restitution to the Financial Industry Regulatory Authority to settle charges that the brokerage firm did not stop five of its traders from engaging in the improper market timing of mutual fund shares for several of the firm’s hedge fund customers.
The five traders reached separate settlements with the S.E.C. over their role in the widely discredited practice.
In a statement on Wednesday referring to the more recent case, Oppenheimer said that “the company is dedicated to putting these issues behind it through the adoption of a strong compliance infrastructure.”
Matthew Goldstein contributed reporting.