Eric White: Of course. So let’s just get down to it. What are the biggest challenges that an agency like the SEC faces during a government shutdown? Obviously, you’re not at the agency. But you are someone who corresponds with them a good amount, I would imagine. So what have you seen taken go by the wayside so far?
Cynthia Krus: Sure, I mean, it’s obviously things have come to a screeching halt, for the most part. I mean the staff is not there, less than 9% of the staff is coming in. So it’s that workload because the workload doesn’t stop coming in. All the corporate entities, who are public companies and advisers or asset managers who interact with the SEC have to continue making filings. So it’s really difficult, I think, for them to, with the reduced staff, as we all know, that there’s been already a reduction of about 15%. How do you keep up with the workload? And how do deal with coming back to the office after, I think, we’re at day 20 or so? It’s just making sure that you’ve got the right people and the right experience in place. So I think that’s the biggest headache. I mean, the SEC obviously has a fair bit of guidance out there about what can be done now and what can’t be done, but it’s just that workload that keeps piling up.
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Eric White: Yeah, we could all sort of see this one coming just because of all the headlines that came out before it was actually official. Were you preparing any of your clients or anybody that you were working with? Did you correspond with the SEC before everything took place just to try and lessen that workload before things took a downward spiral?
Cynthia Krus: Yeah, we were obviously watching very closely and talking with clients about it and folks who had business before the agency. It’s a little difficult when you’re talking about kind of the process you go through at the SEC to push things forward by much. I mean, if there was something that was close to being done, it could be pushed forward. But for the most part, some of the things are just waiting for people to come back. And honestly, this is the last quarter of the year for us and people really want to get transactions done. They were expecting new rulemaking from the SEC. So the delay in waiting as a result of the shutdown is really a significant headache. And you do spend a lot of time talking to clients and coming up with contingency plans, honestly, because we don’t know how long this is going to go. And so you’ve got to, whether it’s something that is over short term or long term, you got to be ready for either. And we’re definitely talking to the clients about how to deal with that. And this is a market that’s been really somewhat difficult for the last couple of years, but IPOs were back, M&A is back as well, and all of a sudden we’ve got the situation where we got like a stop-order on it. So companies are just anxious to get us back on the road and operational.
Eric White: We’ve been highlighting some generalities of the workload and how it piles up and certain things come to a stop. What is the main service that the SEC provides that is the biggest drawback for a company that has to, by law, interact with it?
Cynthia Krus: So let me give you the good part about this is that the electronic system on which issuers make their filings is still up and running. So you can make all those normal course filings and you’re expected to. So that’s not a problem if you’ve got proxies or section 16 type forms, ownership forms, that type of thing that keeps going. The piece that’s problematic is registration statements and the SEC is very active obviously in the comment review process there. So if you’re fortunate enough to have an automatic effectiveness on one of your registration statements, that continues to go on and the staff has reiterated that. But the problem is if you are talking about a transaction where the registration statement is either you’re going to file or you’re being reviewed, that is not happening. So you’ve got to make a judgment call. There is the process and that was recently talked about the fact that you may be able to pull what we call a delaying amendment, but that delay amendment says effectively you’re not going to go effective until the SEC tells you that you’re through the comment process. If you pull it, then it goes effective in 20 days. So you’ve got to make a judgment call on whether the risks of not completing the review process works for you because you’ve got to deal with what are the questions that are outstanding, what are the concerns because the staff is, appropriately so, made it clear that when they come back, they’re going to look at all the people who went effective without them. So it’s a judgment call. I think a lot of time needs to be spent on looking at that. So it’s that registration process and the staff did come out with some guidance on IPOs. And if you were at the end of your process and you were really just nipping and tucking around the edges, you could go effective even if you didn’t have the pricing information, which anybody who does IPOs knows it’s really significant to be able to go to move forward without that in the materials so that they did come out and give a little bit of comfort to people along those lines. But the things that they’re not doing, they’re not accelerating these registrations I just spoke about. They’re not reviewing filings. They’re doing no action letters or exemptive relief. So you’re kind of just in a holding pattern.
Eric White: Yeah, I was going to ask for what is the reaction when you tell a client of yours, OK, even though the bureaucracy has taken a pause, the amount of bureaucracy seems to have doubled almost because of everything you now have to plan for when things get back and up and running. Are they kind of dumbfounded by that? Because you would think like, ‘Well, our regulatory agency isn’t working. So we don’t have to necessarily abide by all the regulations.’ But I imagine a person like yourself is there to say, ‘Hey, hold on a second.’
Cynthia Krus: Well, no, you’ve got to be really careful during these periods. And we’ve seen shutdowns before. So not only is it going to take some time to get up and running, meaning getting everything back in order, but also to effectively work through the workload. So just think about that workload building up. It’s not going to be over in a day. Clients are always asking, ‘What does this mean for me? Why is it taking so long? And what can I do to deal with it?’ So it’s something that we’re talking to people about every day and it’s, honestly, people are getting a little frustrated because of kind of where we are, like I mentioned in the timeline. And we live our life in my world with the SEC along timelines and checklists and closing transactions and all those checklists and timelines are being updated these days.
Eric White: Finishing up here, getting away from the government shutdown before this, you had mentioned it a little bit in your first answer how SEC was not immune to the staffing changes and overhauls that many agencies faced, especially in the beginning days of this administration. Where were things kind of at pre-shutdown? Have you found that communication has dwindled a little or what were things like before this?
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Cynthia Krus: Yeah, no, I mean, my experience has been that things are slowing up a bit. There was a 15% reduction. When you think about 15% reduction in the staff, you can’t think about it. That’s like the most junior people. What I’ve seen is kind of the more, some of the most senior folks or middle-level are the ones that were more likely to potentially find something else that they wanted to do. So that brain drain is really been very significant. And as a result, some of the people who, for example, may not have been line reviewers for years are having to step in to pick up. And this was before the shutdown. This isn’t after. And I will say that there is apparently another RIF separate from the shutdown that was going on. And one component of it was that they were asking some people to take demotions. So it is going to be an interesting a couple of months once we get past this just to deal with the staff reductions. And I really do believe that they’re doing the best they can and really trying to jump in wherever needed. It’s just tough when you don’t know exactly who to call, honestly, because people are shifting different seats. The same people who you talked to before aren’t there anymore. So it’s, we’re all kind of having to really deal with that.
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