On September 27, 2023, the Division of Corporation Finance (Division) of the U.S. Securities and Exchange Commission (SEC) published an announcement about its anticipated operations in the event of a potential government shutdown.[1] The Division’s guidance is generally consistent with guidance that it has provided in anticipation of previous government shutdowns.
Impact of a Government Shutdown on the Division’s Operating Status
If a government shutdown occurs, the SEC will conduct its operations in accordance with its Operations Plan Under a Lapse in Appropriations and Government Shutdown, which was most recently updated in July 2023.[2] In general, a lapse in appropriations would require the SEC to substantially curtail its operations because the Antideficiency Act prohibits federal agencies from making obligations or expending federal funds in excess of an appropriation and from accepting voluntary services, except in cases of emergency involving the safety of human life or the protection of property. Pursuant to the exception that is applicable “in cases of emergency involving the safety of human life or the protection of property,” some Division personnel will continue working to address emergencies as they arise during the course of the government shutdown. The Division intends to provide as much advance notice as possible of any change in its operating status, and such notice will be provided on the SEC’s website. The Division notes that any business days during which the government is shut down will still be considered “business days” for the purposes of the SEC’s rules.
Electronic Filings
If there is a lapse in appropriations and the SEC staff is furloughed, an issuer will be able to continue to submit filings using the EDGAR system, because EDGAR operates under a continuing contract that is not affected by the lapse in appropriations. Depending on the length of the government 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 to submit their filings in accordance with existing deadlines.
Requests for Acceleration or Qualification
If the SEC’s operations cease due to a government shutdown, the staff of the Division of Corporation Finance will not be able to declare registration statements effective nor qualify Form 1-A offering statements. Given the uncertainty as to the timing of when the SEC’s operating status will change, the Division suggests that an issuer may want to submit a request for acceleration or qualification while the SEC is open and operating, if that issuer has a pending registration statement or Form 1-A offering statement that is substantially complete, and that has met all the statutory requirements to request acceleration of the effective date or qualification. The Division indicates that it will work with issuers to resolve outstanding issues. The Division also indicates that, in a situation where the required “no objections” statement from FINRA has not yet been obtained, the staff will consider granting requests for acceleration or qualification if the underwriters confirm in their request that they will not execute the underwriting agreement or confirm sales of the offered securities until they receive that statement from FINRA.
Updating an Effective Registration Statement or a Qualified Form 1-A
If an issuer has an effective registration statement and determines that it must update the information in the prospectus included as part of the registration statement before commencing the offering, the Division indicates that the issuer should not go forward with the offering before updating the prospectus, and the issuer and its representatives will have to decide whether the issuer can update the prospectus without filing a post-effective amendment. During a government shutdown, the issuer can file a post-effective amendment on EDGAR, but the staff will not be in a position to declare that post-effective amendment effective. The same considerations apply in the case of an offering statement update with respect to a previously qualified Form 1-A.
Pricing Information
If an issuer does not price an offering within the 15-day time period provided in Rule 430A, the Division indicates that the issuer may file automatically effective post-effective amendments, as necessary, under Rule 462(c) to restart the 15-business-day period so that, at the time of pricing, the issuer will be able to include the pricing information in a Rule 424(b) prospectus supplement. The Division notes, however, that an issuer cannot rely on Rule 462(c) to include pricing information if the post-effective amendment includes substantive changes from, or additions to, the prospectus in the effective registration statement.
Delaying Amendments
The Division notes that an issuer could elect to file a registration statement without the delaying amendment contemplated by Rule 473(a) in anticipation of the government shutdown; however, the issuer should expect that the staff would ask the issuer to amend the registration statement to include a delaying amendment. Under Section 8(a) of the Securities Act of 1933, as amended (Securities Act), a registration statement without a delaying amendment becomes effective after 20 days have passed, and if the issuer further amends the registration statement before it has become effective, the 20-day period will restart.
If a government shutdown occurs, an issuer could elect to file an amendment to a pending registration statement to remove the delaying amendment so that the registration statement would be effective in 20 days; however, the Division notes that issuers should carefully consider the risks associated with this course of action and should evaluate their particular facts and circumstances before doing so. The Division notes that some of the factors to consider include whether the issuer is Form S-3 eligible, whether the issuer is a repeat issuer, whether the registration statement is subject to review, and whether significant unresolved staff comments remain outstanding. The Division notes that similar considerations should be taken into account if an issuer is considering filing a registration statement without a delaying amendment during a government shutdown.
The Division also notes that the liability and antifraud provisions of the federal securities laws apply to all registration statements, including those that become effective by operation of law pursuant to Section 8(a) of the Securities Act. The Division cautions that an issuer and its representatives should ensure that the registration statement does not contain any material misstatements or omissions of material information required to be stated therein or necessary to make the statements therein not misleading.
The Division points out that simply omitting the delaying amendment in an amendment to a registration statement will not cause the 20-day period to begin to run. Instead, an issuer that intends to remove the delaying amendment must amend its registration statement to include the following language provided by Rule 473(b): “This registration statement shall hereafter become effective in accordance with the provisions of section 8(a) of the Securities Act of 1933.” The Division also notes that the registration statement must be final and include all information required by the form, such as the price of the securities to be sold. Rule 430A is not available in the absence of a delaying amendment because Rule 430A is only available with respect to registration statements that are declared effective by the SEC or its staff.
If the Division’s operating status changes to operational and an issuer’s registration statement that does not include a delaying amendment has not yet gone effective by operation of Section 8(a), the staff may ask that the issuer amend the registration statement to include the delaying amendment and the staff may seek to resolve any outstanding, unresolved comments. The Division points out that the staff will consider a request to accelerate the effectiveness of a pending registration statement that does not include a delaying amendment only if the registration statement is amended to include the delaying amendment prior to the end of the 20-day period, and an appropriate acceleration request is submitted to the SEC pursuant to Rule 461.
The Division notes that, during a government shutdown, the SEC may issue a stop order under Section 8(d) of the Securities Act or take other emergency actions, if necessary. The Division also notes that once the SEC resumes operations, the staff may request that an issuer amend its registration statement, even if it has become effective by operation of Section 8(a).
Proxy and Information Statements
For issuers that have filed a preliminary proxy statement or preliminary information statement prior to the beginning of a government shutdown or during a government shutdown, the Division notes that Rule 14c-5 only requires that a preliminary proxy or information statement be filed at least 10 calendar days prior to the date definitive copies are first sent or given to security holders, and as a result there is no need to hear from the staff regarding the staff’s review of the preliminary proxy statement or preliminary information statement before filing definitive materials once the 10-calendar-day period has passed. The Division cautions that the staff may review an issuer’s preliminary proxy statement or preliminary information statement after the Division’s operating status changes.
No-Action, Exemptive, and Interpretive Advice
The Division notes that the staff will not be able to review or respond to requests for written or oral guidance on legal and interpretive questions during a government shutdown, including any written requests for no-action, exemptive, and interpretive letters relating to legal issues under the federal securities laws. In this regard, the staff will not be able to review or respond to any Rule 14a-8 materials during a government shutdown, and the Division requests that “companies and proponents work together to resolve questions to the best of their ability.” The Division notes that the staff’s no-action responses to Rule 14a-8(j) submissions reflect only informal staff views.
The Division points out that, in an emergency where Rule 3-13 of Regulation S-X may provide relief for an issuer, the Division may consider such a request when it is consistent with the limitations on the Division’s operations discussed above. Requests may be submitted to CFEmergency@sec.gov with a description of the emergency and the significant property interest to be protected.
We will continue to monitor the SEC’s operating status and provide updates as they become available.
[1] Division of Corporation Finance Actions in Advance of a Potential Government Shutdown, available https://www.sec.gov/corpfin/announcement/announcement-cf-pre-shutdown-communication-092723.
[2] Operations Plan Under a Lapse in Appropriations and Government Shutdown, available at https://www.sec.gov/files/sec-plan-operations-during-lapse-appropriations.pdf.
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