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US Securities and Exchange Commission

SEC Budget Boost Would Bolster CorpFin

Bill Flook  Editor, Accounting and Compliance Alert

Bill Flook  Editor, Accounting and Compliance Alert

The Biden Administration on May 28, 2021 released a $1.99 billion budget request to fund the SEC through the coming fiscal year. The proposed budget boost would go toward adding 65 new positions, a dozen of which would be added to the Division of Corporation Finance (CorpFin).

The request comes days after new SEC Chair Gary Gensler appeared before a House Appropriations subcommittee and cast the agency’s divisions as “stretched thin” after years of shrinking headcount. Commission staff levels fell 4 percent between fiscal 2016 and 2020, Gensler said, “and we should at least try to make that up, given the incredible growth and complexity of the markets.”

The SEC, coinciding with the White House’s budget request, released a justification document spelling out its plans for additional hiring across CorpFin, as well as the Divisions of Enforcement, Examinations, Trading and Markets, Investment Management, and Economic and Risk Analysis (DERA), among other SEC units.

CorpFin, which has seen only paltry staff increases in prior budget requests, would add the dozen new positions “to cover this increased workload and advance key rulemaking priorities” from a “once-in-a-generation wave” of traditional initial public offerings, as well as a rush of filings by special purpose acquisition companies (SPACs).

Gensler, in his May 26 testimony before the Financial Services and General Government Subcommittee, placed a special focus on the “unprecedented surge” of SPACs, where the SEC has received 700 S-1 filings so far this year, with some 300 completed transactions, compared to 13 completed transactions in 2016.

SPACs are shell companies that raise money in IPOs, using that capital to acquire a private company and take it public in a process sometimes likened to a “backdoor” public offering. The process of combining into a single publicly traded entity is referred to a “de-SPAC” transaction.

The SEC this year has rushed to issue statements clarifying certain requirements around accounting, disclosure and other areas for SPACs, and House lawmakers are now mulling legislation that would exclude SPACs from a more than two-decade-old safe harbor for forward-looking statements designed to shield companies from private securities lawsuits, putting the transactions on more equal regulatory footing with traditional IPOs. (See House Hearings Finds Broad Agreement on Need for SPAC Liability Reforms in the May 26, 2021, edition of Accounting & Compliance Alert.)

Gensler cited a number of regulatory questions related to the rise of SPACs on investor protection and how the transactions “fit in to our mission to maintain fair, orderly, and efficient markets,” and said he had directed staff to prepare recommendations for potential rules or guidance.

 

This article originally appeared in the June 1, 2021 edition of Accounting & Compliance Alert, available on Checkpoint.

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