Image by Maxim Tolchinskiy on Unsplash
With SEC staff furloughed, startups are going public under an obscure auto-approval rule. Here’s how it works, and why it matters.
Let’s be honest — hearing “government shutdown” usually makes our eyes glaze over. But this time, something unusual happened in the startup world. Thanks to the shutdown, companies now have a faster, kind of sneaky way to go public. And it may catch some investors off guard.
Here’s what’s happening, in plain English.
Startups Are Using an Old Rule Most Avoided
Because 90% of the SEC (Securities and Exchange Commission) staff are furloughed, companies looking to go public are turning to a little-known rule that’s been around for years. It’s called automatic effectiveness.
Normally, startups file their IPO paperwork with the SEC and wait for regulators to review everything — from their financials to risk disclosures — before gaining the green light to sell shares to the public.
But now, with nearly everyone at the SEC out of office, companies can just file their forms and… wait 20 days.
After that, the registration becomes automatically effective.
Image by Stuart Guest-Smith on Unsplash
Wait, Doesn’t the SEC Have to Review These?
Technically, no. The rule was always there, but companies rarely used it because they wanted feedback before risking an IPO in the wild. It’s a bit like submitting a final term paper without letting your professor review a draft. Risky, right?
But during the shutdown, the SEC has basically said, “We won’t penalize you if you skip pricing details or leave out ‘price-dependent information.’” That makes this fast-track option more attractive to IPO hopefuls.
In other words, a company can now legally weed out the trickiest parts and still go public — even before investors fully understand what they’re buying into.
So What’s the Catch?
This might raise some eyebrows.
Without SEC review, the usual investor protections aren’t in place before shares are sold. The vetting still happens — but it’s after the IPO and only if something goes wrong.
That means retail investors might buy into a company whose details haven’t been fully combed over by regulators. Kind of like buying a product before reading the reviews.
It’s all legal. Companies are still responsible for what they disclose, and the SEC can come back later demanding changes. But by then, people have already bought in.
Why Should You Care?
If you’re an investor — or even just IPO-curious — it’s worth being extra cautious right now. The shutdown has made traditional IPO paths shaky.
Here’s what to watch out for:
- Missing pricing info: The company might not disclose how they calculated their IPO share price.
- Limited SEC review: No one may have flagged red flags before shares hit the market.
- Post-IPO risk: Problems could come to light only after you’ve invested.
Image by Jonathan Cooper on Unsplash
Final Thought
This isn’t necessarily a disaster. Some companies may still act transparently and responsibly. But it does mean the usual safety net — early oversight — isn’t guaranteed during the shutdown.
So if that hot new startup IPO is calling your name, take a breath. Do your homework. Because right now, the system is a little bit upside down.
And in times like these, being a smart investor means reading between the lines — especially the ones not reviewed by the SEC.
Stay informed. Stay curious.
Keywords: SEC shutdown IPO, automatic approval IPO, startup IPO 2024, government shutdown investing, IPO risks, SEC furlough effect
