IPO Traffic Jam Part of Shutdown’s Effects on SEC

IPO Traffic Jam Part of Shutdown’s Effects on SEC

As the longest federal government shutdown on record approaches the one month mark, visitors to national parks and monuments are discovering mountains of trash waiting for them. Airport travelers are dealing with extended delays and snarled lines at security checkpoints.

Meanwhile, the Securities and Exchange Commission (SEC) is starting to face a backlog of its own. Unfortunately, fixing it could be more complicated than hauling away garbage or calming the nerves of frazzled flyers.

The SEC’s operations plan in the event of a shutdown entails a limited number of activities for which staff members are available. Notably, the allowed activities do not include processing filings such as corporate registration statements.

Since the agency can’t respond to or approve such filings, the market’s IPO pipeline is blocked. As of now, though, don’t count on any IPOs in the first quarter of 2019.

That means some hotly anticipated offerings can’t move forward. They include ride-sharing services Uber and Lyft, and collaborative work services provider Slack. Once the SEC is back open, those companies may have to further delay going public to allow time to publish new quarterly data.

The hold-up has prompted speculation that some companies may take the drastic step of removing the so-called delaying amendment from their registration statements. Doing so would mean declaring the registration statement effective 20 days after filing.

The shutdown over President Donald J. Trump’s insistence on funding construction of a wall at the southern border of the United States is affecting more at the SEC than just the flow of IPOs. Rep. Maxine Waters (D-CA), chairwoman of the House Committee on Financial Services, has highlighted the shutdown’s neutering of the commission when it comes to policing investment fraud.

“This president has all but closed the doors of the SEC, furloughing 94 percent of the agency and essentially providing fraudsters and schemers with a free pass to swindle investors and small businesses,” Waters said in remarks delivered on the floor of the House of Representatives on Jan. 9. “With such a skeleton crew of less than 300 staff, the SEC cannot possibly oversee the activities of the over 26,000 registered entities, such as investment advisers, broker-dealers and stock exchanges. Worse, the SEC is unable to hold bad actors accountable through most enforcement actions, preventing harmed investors from obtaining relief.”

And the list goes on. The SEC’s Office of Compliance Inspections and Examinations has apparently stopped doing investment adviser exams for the time being. That development also has raised questions as to the status of in-progress exams.

For financial advisers looking to open registered investment advisory firms, their plans are seemingly on hold as well. No one at the SEC is processing investment adviser applications at the moment. (On the other hand, anything at the SEC funded by contract is still operational, so the Investment Adviser Regulation Depository is continuing to accept Form ADV, Form ADV-W and Form ADV-E filings.)

With so much work piling up during the shutdown, it’s easy to imagine SEC workers hope their unplanned vacation doesn’t drag on much longer.

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