Government shutdown may stall US IPO reviews
During the federal government shutdown, the U.S. Securities and Exchange Commission (SEC) will largely suspend the processing of initial public offering (IPO) reviews. Although the EDGAR system still accepts new submissions, the corporation finance division will no longer review or comment on filings, retaining only a minimal number of staff to handle fee calculations and emergency filing relief issues. Lawyers note that the shutdown effectively creates an 'IPO freeze,' potentially disrupting companies' listing preparation plans that span months or even years. The recent IPO market has shown signs of recovery, such as California-based robo-advisor Wealthfront having publicly filed its listing documents, but the shutdown may impede its progress.
Key Takeaways
- The U.S. Securities and Exchange Commission (SEC) is expected to largely pause processing of initial public offering (IPO) filings during the federal government shutdown.
- In guidance posted on its website, the SEC said its Division of Corporation Finance will still accept new IPO submissions through its EDGAR portal during the shutdown, but the agency made clear it will not review or comment on filings.
- "During a government shutdown, SEC operations will be extremely limited," attorneys at law firm Fenwick & West LLP said in a Thursday article.
Dive Insight
According to the SEC's website, the Division of Corporation Finance is responsible for ensuring investors have the information needed to make informed investment and voting decisions, including during a company's initial public offering of securities and subsequent ongoing disclosure periods. However, due to the shutdown, the division currently has only a "limited number of staff" available to answer questions related to fee calculations and emergency filing relief.
"Staff in the division will not be able to respond to other questions," the SEC said. "Regardless of our operating status, EDGAR will continue to accept registration statements, offering statements, and other filings; however, we will not be able to declare registration statements effective or qualify Form 1-A offering statements."
Louis Lehot, a partner at law firm Foley & Lardner, noted the shutdown effectively puts a "freeze on IPOs." In a September article in The National Law Journal, he said: "Companies spend months or even years preparing for their market debut, and a sudden halt can disrupt even the most carefully orchestrated business plans."
The disruption comes as the IPO market has shown signs of recovery in recent months. Companies at higher risk from the shutdown include California-based robo-advisor Wealthfront, which released its upcoming IPO filing on Monday, according to Banking Dive, a sister publication of CFO Dive.
According to a July report from Ernst & Young, U.S. IPO volume in the second quarter rose 16% year over year, with 50 deals completed raising $8.1 billion. Overall, the quarter showed optimism across sectors, with the technology, media, and telecommunications category leading, contributing a quarter of deal volume and nearly half of total proceeds, the report said.
Attorneys at Fenwick said the shutdown could heighten market uncertainty, so companies filing with the SEC should be cautious in providing any forward-looking guidance, ensuring it is based on "realistic assumptions." "While most government shutdowns are resolved within days or weeks, companies should prepare for longer-term scenarios," they wrote.