November 16, 2023
Back to the Drawing Board? GAO Ruling Jeopardizes Status of Crypto SAB
As Liz blogged earlier this month, the 5th Cir. recently sent the SEC back to the drawing board on its buyback disclosure rules, and it now looks like something similar could happen to the SEC’s Staff Accounting Bulletin 121, which addresses accounting for safeguarded digital assets. That’s because, according to the GAO, the SEC failed to comply with procedures mandated by the Congressional Review Act (CRA) when its accounting staff issued the SAB. This excerpt from a recent Fenwick memo explains:
The CRA requires that, before an agency rule can take effect, the agency must submit a report on the rule to both the House of Representatives and the Senate as well as to the Comptroller General. The law allows Congress to review and disapprove any rule newly issued by federal agencies for a period of 60 days using special procedures. If a resolution of disapproval is enacted, then the new rule has no force or effect.
On August 2, 2022, Senator Cynthia M. Lummis requested the GAO—which is an independent, non-partisan agency within the legislative branch of the federal government—to determine whether SAB 121 was a “rule” subject to the CRA. The SEC maintained that the bulletin was not subject to the CRA because it was published by the SEC’s staff, rather than through the SEC. The GAO disagreed, however, finding that the statement was an “agency statement” within the applicable definition of a “rule” under the Administrative Procedures Act, and thus, was subject to the CRA’s requirements.
The GAO reasoned that, since the role of the SEC’s Division of Corporation Finance (Division) is to monitor companies’ compliance with accounting and disclosure requirements, and since the Division’s practice is to refer noncompliant companies to the SEC’s Division of Enforcement, it was “reasonable to believe that companies may change their behavior to comply with the staff interpretations found in [SAB 121].”
So what happens now? That’s a bit unclear. The memo says that there’s a window of time during which Congress can pass a joint resolution disapproving the issuance of SAB 121. It seems unlikely that the Congressional clown show could get its act together to do something like that, but even in the absence of such action, the memo says that the GAO’s decision strengthens the hand of any litigant seeking judicial review of SAB 121.
– John Jenkins