[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.
____________________