Episode 34: The Government Shutdown's Impact on SEC Examinations

On episode 34 of the CCO Buzz we discuss the current state of the government, more so on the government shutdown and SEC Examinations. With no immediate solution in sight, we're discussing the issues at hand with our very own CEO Michelle Jacko. She’s uncovers some of the questions that may arise in this current uncertain territory and the best steps moving forward.

 

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CCO Buzz: Hello and welcome back! Can you believe how long this government shutdown is lasting…? It’s already on day 35 and we’ve already surpassed the previous 1995/1996 21-day shutdown record.  With no immediate solution in sight we decided that on episode 34 of the CCO Buzz Podcast we discuss the issues at hand with our very own CEO Michelle Jacko. She’s here to discuss the questions that may arise in this current uncertain territory and the best steps moving forward. And with that, here’s Michelle…

Michelle Jacko: Hello! This is Michelle Jacko, CEO of Core Compliance and Legal Services and on this week’s CCO Buzz we will be taking about how the government shutdown is impacting SEC Examinations.

Some of our clients were in the midst of being examined by the SEC in December. Some received initial document request lists and the office phone rang. As people asked, “What should I do? Should I actually respond? Or does this mean I have additional time now that the SEC is not responding?”

In other cases, we had follow-up to SEC deficiency letters that had been received prior to the government shutdown. In those instances, the staff had asked for supplemental information and evidence of internal controls that these registrants had put into place, as a result of the deficiencies noted. In that particular circumstance, we attempted to contact the Examiner, in order to obtain a secure link so that documents so that documents could be uploaded.

After receiving an out-of-office reply from the Examiner stating that “we will not be checking emails until the government shutdown ceases.” We then proceeded to contact the SEC’s hotline. The emergency hotline indicated that a staff member would be getting back to us shortly, yet our phone never rang, and email was never received. And that client had no choice but to use the old-fashioned approach and Federal Express various documents on an encrypted thumb drive to the regional office.

Just because the government is in a shutdown does not mean that deadlines should not be followed or adhered to. It does not grant the registrant a blanket license to, simply, respond as needed or once the government reopens. While the staff will, for sure, be back-loaded when the government finally does open; registrants must heed warning that any deadlines that were imposed by the staff should be adhered to and responded to accordingly.

Some of our clients have asked that under the Dodd-Frank Rule there was an established 100-end day deadline for examinations and enforcement actions triggered by wells notice. Some of our clients have asked, “will the government shutdown count toward the 180-day window that the staff has to respond to a registrant regarding an investigation or compliance examination?”

And the answer is, likely, it will not.

This is a new phenomenon we are experiencing. Nobody really knows the answer to this, but many believe - out in the industry- that the shutdown will extend the 180-days, as the staff has latitude to do so.

So, for our clients, the best piece of advice we can give, for right now, is to…

  • Stick within the deadlines;
  • Spend the extra time that you might have to look at calculations of fees;
  • Consider your disclosures in ADV;
  • Review your protocols in your Policy and Procedure Manual; and
  • Ensure that whatever your internal controls are, in your responses in the Deficiencies Letter, as what you said you will do – you, actually, are doing.

Because it is likely that when the staff is back in business that they will follow-up with you accordingly.

For more information on this topic and regulatory compliance matters, please contact us at (619) 278-0020 or visit our website at www.corecls.com. Thank you.

CCO Buzz: Well that’s it for this week’s episode. If you’d like additional information, please check out our website at www.corecls.com. You can also follow us on Facebook, LinkedIn or Twitter @CoreCLS. Thank you and we hope you tune into next week’s episode of the CCO Buzz.

 

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