SEC Enforcement During the Government Shutdown

SEC Enforcement During the Government Shutdown. Is the SEC enforcing its laws right now?

On Thursday, December 27, 2018, the Securities and Exchange Commission began operation within its plan during a federal government shutdown.  They say they have “staff available to respond to emergency situations involving market integrity and investor protection.”  That means that out of the 4,426 active staff employees of the SEC, 175 will be retained to protect life or property, 110 of them, who are engaged in law enforcement, will continue working, and only one employee will be working part-time on investor protection.  The SEC ”will be available to answer questions about fee calculations for filings during the partial shutdown, but they will not respond to other questions.”

The Investment Adviser Registration Depository system will continue to accept filings but the Division of Investment Management will not be available to provide advice.  Certain SEC systems, which are contracted out to third parties, will remain in operation, including EDGAR, the Electronic Data Gathering, Analysis, and Retrieval system that allows companies to electronically file initial public offerings and other crucial documents.  The shutdown will have no impact on those services, but with the SEC not responding to those filings, it could cause a delay in several IPOs, as well as a lasting impact on the state of the IPO market in 2019.  Smaller businesses, particularly those in need of an infusion of capital to continue operating, will bear the brunt of any IPO delays.

These limited and curtailed services will affect different investors in different ways, depending on their needs and objectives.  The most critical harm to all investors could be that the SEC will only retain a few staff employees to review complaints from investors, but they will not be in a position to respond to those complaints, questions, or requests for information.

Market Watch reports that If the shutdown were to continue for a prolonged period, companies could end up with financial statements that have gone stale.  That means they have reached a point where the quarterly financials included have become so old that the issuer needs to provide numbers for the subsequent quarter. Those numbers need to be audited to be included in a prospectus, creating another potential holdup. 

However, the weak stock market in late 2018 and early 2019 signals that investors are being cautious, which may force new IPOs to devalue their prices.  Also, the delay in IPO approvals may be a blessing for some IPOs, because, as the stock market strengthens, going into spring, the values may increase.

Navigating the securities markets can be difficult and confusing for those who do not work in it constantly.  Without available help from the SEC, it can be more of a challenge.  Fortunately, Corporate Securities Legal LLP, a boutique securities law firm, will not be shut down but will be available to assist investors and business owners with professional legal advice about the securities market and raising capital. Contact us now: /location/contact/