The shutdown, now in its fourth week, has all but darkened the Securities and Exchange Commission, the government agency that oversees the markets. Most of the SEC’s 4,400-person staff is furloughed, including lawyers and other staffers who must approve corporate paperwork for initial public offerings. This process typically takes two to three months.
Companies that have been moving toward issuing initial public offerings of stock in the coming months include such high-profile names as the ride hailing firms
Billions of dollars are at stake for the companies as well as millions in fees for the
More than 800,000 federal employees, over half of them still on the job, missed their first paycheck Friday as the closure became the longest government shutdown of any kind in
Here’s a closer look at how the shutdown is hampering the SEC’s work:
Only a small SEC staff deemed essential is in place to monitor the markets and, in the agency’s words, “respond to emergency situations” involving market integrity and investor protection, including law enforcement. The SEC’s online financial reporting service for companies, known as Edgar and widely used by investors, continues to operate normally.
About 285 agency employees are still working, including around 110 in law enforcement, according to the SEC’s shutdown plan.
“Our staff continues to monitor the asset management space, track market activity, and watch for systems issues or other events that could disrupt the fair and orderly operation of the securities markets,” the SEC said in a statement.
Before the shutdown took effect late last month, the SEC had urged companies to request that paperwork for public stock offerings already in the pipeline be expedited. The agency said it approved roughly a dozen such registration statements.
SMALLER COMPANIES HURT?
For the largest companies that were planning public stock offerings, “it’s not the end of the world,” said Alan Denenberg, a corporate lawyer who heads David Polk’s office in tech-centric
“You’re suddenly thrown into a tailspin,” Denenberg said.
The consequences of these companies’ delayed access to capital can affect ordinary households, he noted. There may be clinical trials for drugs or devices that the companies won’t be able to help finance, a delay that would slow the public’s access to potential breakthroughs.
OPEN SEASON FOR FRAUD?
With many SEC enforcement attorneys and staffers idled, some see warning lights flashing involving white-collar crime.
The shutdown is “essentially providing fraudsters and schemers with a free pass to swindle investors and small businesses,” said Rep. Maxine Waters, the
With its depleted staff, the SEC can’t monitor the activities of the 26,000 investment firms, brokerages and stock exchanges that are registered with the agency, Waters said on the House floor recently. “Worse, the SEC is unable to hold bad actors accountable through most enforcement actions, preventing harmed investors from obtaining relief.”
“It’s smoldering, but it’s not flaming,” he said. A notable exception could be enforcement cases for which the statute of limitations will soon run out, thereby preventing the SEC staff from pursuing those cases, Cox noted.
In a case Tuesday, the SEC announced civil charges against a Ukrainian man and eight other individuals and companies in a scheme to profit by hacking into the Edgar computer system to steal companies’ earnings reports before their public release. They are accused of reaping $4.1 million from the scheme.
The shutdown is preventing the SEC staff from processing or ruling on the hundreds of shareholder proposals that are challenged by companies each year. With the spring annual-meeting season a few months away, this means the agency can’t determine whether such proposals can be placed on the proxy ballots that companies issue to shareholders.
Investors typically try to place proposals on proxy ballots, for consideration in a vote at annual shareholder meetings, on issues ranging from executive pay to political spending to gender discrimination.
This year, for example, an activist shareholder wants to pre-emptively block the nation’s two largest private detention companies from housing immigrant children who have been separated from their parents. The companies,
The companies have asked the SEC for permission to exclude the resolution by Alex Friedmann, associate director of the Human Rights Defense Center, from the ballots.