[Congressional Record Volume 142, Number 7 (Monday, January 22, 1996)]
[House]
[Pages H340-H341]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                          KEEP THE SEC FUNDED

  (Ms. LOFGREN asked and was given permission to address the House for 
1 minute and to revise and extend her remarks.)
  Ms. LOFGREN. Mr. Speaker, I have studied the materials about the 
Government shutdown that could happen this Friday. I'm worried about 
something nobody seems to be talking about--funding for the Securities 
and Exchange Commission.
  I'm not an expert on the SEC; not many Members are. But, I know when 
the Stock Market crashed in 1929, it didn't do America much good. The 
SEC is supposed to keep that from happening again.
  I have a letter from the SEC that says, ``in the event of a 
disruption in funding . . . we fear the protection of investors and 
capital formation could be seriously hampered and it would seriously 
compromise the SEC's ability to oversee the securities markets . . . 
and could hamper the agency's ability to react quickly in the event of 
a market disruption.''
  The SEC would be unable to respond to requests for Commission action 
to facilitate capital raising, mergers and acquisitions, and tender 
offers. Initial public offerings couldn't move forward.
  I represent Silicon Valley. How will America be improved if the high-
tech, cutting-edge companies of Silicon Valley are stopped from raising 
Capital through IPO's?
  We have 4 days to act--to fund the SEC at last year's level. Let's 
protect America's economy and get that job done tomorrow.
  Mr. Speaker, I include for the Record the following material:

                                               U.S. Securities and


                                          Exchange Commission,

                                 Washington, DC, January 19, 1996.
     Hon. Harold Rogers,
     Chairman, Appropriations Subcommittee on Commerce, Justice, 
         and State, the Judiciary, and Related Agencies, House of 
         Representatives, Washington, DC.
       Dear Chairman Rogers: We are writing to request your help 
     in the upcoming negotiations for a new Continuing Resolution 
     or appropriation action. We strongly urge you to support 
     language that maintains the SEC's 1005 funding level of $297 
     million and maintains the fee rate at the current rate of 1/
     29th of one percent of the offering amount. In the event of a 
     disruption in funding authority for the Securities and 
     Exchange Commission, we fear the protection of investors and 
     capital formation could be seriously hampered. In addition, 
     the amount of money deposited into the U.S. Treasury from SEC 
     filing fees would be reduced.
       In our view, operating at this minimal emergency level 
     would seriously compromise the SEC's ability to oversee the 
     securities markets. The impact of a disruption in the SEC's 
     funding authority would include:
       No new investigations. Enforcement staff would be unable to 
     open new cases. While emergency actions to freeze assets or 
     otherwise protect assets would be permitted under the 
     contingency plan, the agency's ability to detect developing 
     situations which present imminent threat to investor assets 
     would be impaired.
       No work on existing investigations. Enforcement staff would 
     have to cease ongoing investigative activity, except where 
     appearances in court are required or investor funds are at 
     active risk.
       No review of corporate filings except in emergency 
     situations. The normal processing of corporate filings by 
     companies seeking to raise capital in the markets would be 
     significantly impaired.
       No regular examinations except in emergency situations. 
     There are certain inspections that the SEC conducts regularly 
     and continually; during a funding disruption, regular 
     examinations and inspections of broker-dealers, investment 
     companies, and investment advisers could not be performed. 
     The absence of such reviews, in the worst case, could place 
     the assets and retirement funds of investors at risk. The 
     agency's ability to detect situations that present imminent 
     threat to investor assets would be impaired.
       No review of periodic filings. Quarterly and annual reports 
     would not be reviewed. The assurance of adequate financial 
     disclosure for investment decisions could be compromised.
       Limited market oversight. A funding disruption would reduce 
     market monitoring staffing to skeletal levels and could 
     hamper the agency's ability to react quickly in the event of 
     a market disruption. Regular inspections of stock exchanges 
     and markets would cease.
       No review of stock exchange (NYSE, AMEX, NASD, etc.) 
     pending rule proposals except in emergency situations. The 
     ability of exchanges to respond in a timely fashion to 
     changing market conditions and to introduce new products will 
     be hampered without SEC approval of their filings.
       No transactional assistance except in emergency situations. 
     The staff would not be able to respond to regular requests 
     for exemptions or other necessary Commission action to 
     facilitate capital raising activities, mergers and 
     acquisition transactions, and tender offers.
       During the government-wide shutdown which occurred November 
     14 through November 20, the fee rate for registration 
     statements filed pursuant to Section 6(b) of the Securities 
     Act of 1933 reverted to the statutory rate of 1/50th of one 
     percent from its current rate of 1/29th of one percent. Had 
     the fee rate not been restored to 1/29th of one percent in a 
     subsequent continuing resolution, the U.S. Treasury would 
     have lost approximately $30 million.
       As you know, the SEC is funded through the Commerce-
     Justice-State (CJS) appropriations bill, which was vetoed by 
     President Clinton on grounds unrelated to the SEC. The SEC 
     portion of the CJS bill, however, is non-controversial. It 
     would provide the SEC with funding at its fiscal 95 level of 
     $297 million, and provide the SEC with authority to continue 
     to collect securities fees to offset much of its 
     appropriation.
       The SEC is a very small agency that is charged with a very 
     large mission: promoting the fairness, efficiency, and 
     preeminence of our nation's securities markets. We are aware 
     of the many challenges you face and difficult decisions you 
     must make in the days ahead. We respectfully request that you 
     seriously consider the SEC's funding.
           Sincerely,
                                              Steven M.H. Wallman,
     Commissioner.
                                                                    ____


               [From the San Jose Mercury, Jan. 6, 1996]

                    Why SEC Closure Hurts Tech Firms

                           (By Steve Kaufman)

       The initial public stock offerings of 60 technology 
     companies--including about 10 technology firms based in 
     Silicon Valley--are in jeopardy because of the pending 
     shutdown of the Securities and Exchange Commission next week.
       U.S. Rep. Zoe Lofgren, D-San Jose, said Friday the SEC is 
     among the agencies that have been omitted from a list of 
     those that will get interim funding until the resolution of 
     the federal budget impasse. The SEC, which regulates the U.S. 
     financial markets, must approve IPOs.
       IPOs are one of the hottest market segments. Some IPO 
     experts said the freeze in IPOs could have a negative effect 
     on the companies involved, even if it is short-lived. They 
     are fast-growing companies in rapidly changing markets. Such 
     companies may lose brief opportunities to market their 
     products if they don't quickly collect the capital they 
     expect from the public sale of their stock, experts said.
       For a company competing in Internet software or in medical 
     devices, for example, ``even a delay of a few weeks could 
     mean lost market share and customers,'' said Kathy Smith, an 
     analyst at Renaissance Capital, a Greenwich, Conn., 
     institutional research firm that specializes in IPOs.
       IPO watchers couldn't believe that the SEC plans to close, 
     albeit temporarily. Because the nation's financial markets 
     remain open, they said, its functions are essential. Smith 
     said the closing, however brief, could damage the reputation 
     of the U.S. markets as the most efficient and best regulated 
     in the world.
       ``An SEC shutdown tells the world that maybe the U.S. 
     financial markets aren't as dependable as it thought they 
     were,'' Smith said.
     
[[Page H341]]

       According to Securities Data Co., a Newark, N.J., financial 
     market research firm, 80 IPOs valued at $2.32 billion have 
     been approved by the SEC and will begin to go public next 
     week.
       But Renaissance Capital added that 60 more IPOs--including 
     41 technology companies--are expected to go public in January 
     and February and are in various stages of the SEC IPO 
     approval process. Smith believes that all but one of these 
     deals will be snagged by an SEC shutdown, which reportedly 
     could occur toward the end of next week. In aggregate, these 
     deals are valued at about $2 billion.
       An SEC shutdown could affect the entire IPO market, not 
     just the latest round of newcomers. But it is unclear whether 
     that impact would be negative or positive.
       It could be negative because a hot IPO market already has 
     made investors nervous, IPO watchers say. Any unexpected 
     problem could deflate interest in IPOs and conceivably pummel 
     prices. ``The market could lose a lot of momentum--and at a 
     time when a lot more deals are ready to roll out,'' said 
     David Gleba, chairman of Ventureone Corp., a San Francisco 
     venture capital research firm.
       On the other hand, Gleba said, a pause in the IPO market 
     might provide a needed break. The breather could reduce 
     speculative froth and ultimately lengthen the life of this 
     cycle. ``In the long term, this could actually turn out to be 
     a positive,'' Gleba said.
       Unlike others, Gleba was also ambivalent about the impact 
     on delayed IPOs.
       ``Anything that risks getting money to grow your business 
     is bad news,'' he said. On the other hand, he said, the 
     timing of IPO deals has always been flexible, with no 
     guarantee when deals will occur. Good IPO candidates are able 
     to delay offerings by months, or even a year, an advantage 
     because the stock market environment could change and no 
     longer be favorable for an IPO.

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