September 27, 2023
Government Shutdown Blues
Well, I was hoping that I would not have to circle back to the topic of the looming government shutdown, but the situation does not seem to have improved on Capitol Hill since I last blogged about this topic. There is obviously still time for a resolution, as well as for the SEC Staff to provide some further guidance, but I thought it still might be useful to dust off some of the key considerations to keep in mind if there is a lapse in appropriations at the SEC. Today, I address what we can expect from an operational standpoint.
Operations – In some of the past shutdown situations, the SEC was able to maintain its operations for some period of time after other parts of the government were shut down, but there is no assurance this will happen if there is a lapse in appropriations this time around. If the SEC is forced to shut down, the Antideficiency Act – which dates back to the late 1800s – prohibits federal agencies from incurring obligations or expending federal funds in advance or in excess of an appropriation, and from accepting voluntary services. Government employees can face significant consequences for violating these restrictions, so do not expect any Staff members to be checking their emails or responding to telephone calls during the pendency of a shutdown. There is an exception to the restrictions in the Antideficiency Act which allow some limited staffing to address emergencies involving “the safety of human life or the protection of property.” During the 2019 shutdown, Corp Fin staff was available to address filing fee questions and emergency securities matters, which was generally subject to a very high bar. Keep in mind that the Antideficiency Act makes a government shutdown much different from a “snow day” at the SEC.
Status of Commissioners – Presidential appointees, such as the SEC’s Chairman and the other Commissioners, are not subject to furlough during the shutdown because their salary is an obligation incurred by the year, without consideration of hours of duty required, so they cannot be furloughed. As a result, the SEC Commissioners continue to report for duty during a shutdown, although they are limited in acting individually or as a Commission as long as no appropriation bill is enacted.
Status as a “Business Day” – While during a government shutdown the SEC is, for all intents and purposes, not conducting any business, the days that the SEC is subject to the shutdown should nonetheless be counted as business days for the purposes of, e.g., filing deadlines, Rule 430A. Rule 13e-3, Rule 13e-4, Regulation 14D, Regulation 14E and Regulation M.
EDGAR Soldiers On – While the Staff is furloughed, an issuer can still make all of its EDGAR filings, because EDGAR operates under a continuing contract that is not affected by the lapse in appropriations. Depending on the length of the shutdown, it is possible that EDGAR could cease operations, but as long as EDGAR remains up and running, issuers, investors, insiders and others must continue submitting their filings in accordance with existing deadlines. It should still be possible to submit a Form ID and thereby receive EDGAR codes during a shutdown, and in our experience the turnaround time for that function during the 2019 shutdown was pretty consistent with when the SEC is not in shutdown mode. Filer support personnel should also available to perform password resets, answer questions about fee-bearing EDGAR filings and other emergency questions regarding EDGAR submissions.
Rulemaking – The SEC continues to accept comment letters on rule proposals and concept releases during a federal government shutdown, but given the limited Staff, posting such letters to the SEC website could be delayed. Obviously, the limited Staff and the restrictions on the agency’s operations would prevent any rulemaking activities during the pendency of a government shutdown, including meeting with outside parties and the scheduling of open meetings to consider the proposal or adoption of rules.
Stop Order Database – The SEC’s online stop order database, which issuers have come to rely on in order to confirm that no stop order has occurred when closing a registered offering, would remain up and running during a shutdown and would in all likelihood continue to be updated, although any SEC stop order action during a shutdown would appear to be unlikely unless it meets the protection of “life or property” threshold.
– Dave Lynn