Going public? For Uber, Lyft and others, shutdown slows IPOs

WASHINGTON — The partial government shutdown is slowing plans by some companies to issue stock to the public and potentially cutting off a key source of capital for the financial markets.

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 4,400person 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 highprofile names as the ridehailing firms Uber and Lyft and the image-sharing platform Pinterest. Among the others are biotech and health sciences companies that depend on funding from the public markets that finance IPOs.

Billions of dollars are at stake for the companies as well as millions in fees for the Wall Street firms that facilitate the deals.

Brian Lane, a securities lawyer at Gibson, Dunn & Crutcher who led the SEC’s corporation finance division in the late 1990s, said some IPOs planned for spring could be delayed until fall if the shutdown persists. For larger companies with ample cash reserves, the problem is manageable, Mr. Lane said. But smaller companies that lack deep sources of funding from the private credit markets or from venture capitalists could be hurt.

James Cox, a professor of securities law at Duke University, suggested that some IPOs eyed for the spring could end up being delayed as long as into 2020.

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 U.S. history. President Donald Trump has rejected suggestions that he agree to temporarily reopen the government while negotiating with Democrats on the wall along the Mexican border that he has demanded.

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.

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 techcentric Northern California. Companies with deep pockets, like Uber, Lyft and Pinterest, can ride out the delay, he said. That’s in contrast to perhaps dozens of smaller biotech and health sciences companies that hoped to launch IPOs within a few months. Their viability depends on access to the public capital markets.

“You’re suddenly thrown into a tailspin,” Mr. 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.

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 California Democrat who now chairs the U.S. House Financial Services Committee, which oversees the securities industry.