Shutdown clogging IPO pipeline

SEC staffing issues might push offerings into fall — or later

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

The shutdown has all but darkened the Securities and Exchange Commission. Most of the 4,400-person staff is furloughed, including lawyers and other staffers who must approve corporate paperwork for initial public offerings.

Companies that have been moving toward IPOs include such high-profile names as Uber, Lyft and 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, along with millions in fees for the Wall Street firms that facilitate the deals.

Brian Lane, a securities lawyer at Gibson, Dunn & Crutcher who once led the SEC’s corporation finance division, said some IPOs planned for the spring could be delayed until the fall if the shutdown persists. For companies with ample cash reserves, the problem is manageable, Lane said. But smaller companies could be hurt.

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

Representatives for Uber declined to comment, and those for Lyft and Pinterest didn’t respond to requests for comment.

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.

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 tech-centric 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,” Denenberg said.

With all but about 10 percent of the SEC’s enforcement attorneys and staffers idled, some see warning lights involving white-collar crime flashing.

The shutdown is “essentially providing fraudsters and schemers with a free pass to swindle investors and small businesses,” said Rep. Maxine Waters, D-Calif., who now chairs the House Financial Services Committee, which oversees the securities industry.

J. Scott Applewhite The Associated Press From left, Reps. Katherine Clark, D-Mass., Hakeem Jeffries, D-N.Y., and Katie Hill, D-Calif., speak to reporters Tuesday in Washington about the government shutdown. Most Securities and Exchange Commission workers are furloughed.