The record federal government shutdown that affected 800,000 employees—which could resume Feb. 15—may have lingering effects at the U.S. Securities and Exchange Commission and the Department of Justice, as well as a long-term impact on hiring and retention at enforcement agencies, some white-collar attorneys said recently.
“Some initial public offerings were reportedly slowed down because of the shutdown and from an enforcement perspective, many investigations had to be temporarily halted because they [personnel] weren’t permitted to show up for work and couldn’t take testimony,” said Douglas Paul, a former SEC branch chief in the enforcement division, and a partner in Akerman’s white-collar crime and government investigations group in Washington, D.C.
But Paul also expressed concern about what the 35-day partial shutdown “does to the morale of individuals at SEC and DOJ and other enforcement agencies and whether people want to remain at the agency or switch as shutdowns become more of a political issue than a funding issue.”
“The concern is that three or six months down the road you might see an exodus that might really hurt,” he said.
In statements posted on its website, the SEC said it plans to work through its backlog of filings, submissions and requests for staff action based on the date they were submitted, but that responses to questions may take longer than normal. The backlog could be exacerbated by companies rushing to make new filings in the window before Feb. 15, when the temporary deal between the president and Congress expires.
Government employees working without pay numbered 450,000, and another 350,000 were on unpaid furloughs, during the shutdown that started Dec. 22 and ended Jan. 25, according to the American Federation of Government Employees, the largest labor union representing federal workers. During that period, the SEC operated with an extremely limited staff of about 285 individuals, primarily to monitor markets functioning and cover emergencies. The vast majority of SEC staff was furloughed.
SEC Chairman Jay Clayton issued a statement Jan. 26 saying that the commission had resumed operations with normal staffing and their 4,500 employees had returned to their posts in Washington, D.C., and 11 regional offices. On Feb. 4, the commission had no comment in reply to a request for updated information about backlogs or other repercussions, but cited a statement on its website that “the Securities and Exchange Commission is currently open, fully staffed and focused on our mission.”
The Justice Department also resumed operations in late January after the appropriations lapse. Members of the FBI Agents Association, a professional organization, had complained during the shutdown that some FBI investigations had been severely hampered, despite the fact that many personnel were working without pay. Members said that the agency had been unable to fund confidential sources in counterintelligence and counterterrorism operations or pay for operational travel on narcotics probes, for example.
On Tuesday, an FBI spokesperson said in an emailed statement that “all FBI agents and support personnel in field offices were considered excepted from furlough. At FBI headquarters, certain personnel were designated as excepted from furlough to provide direction and investigative support to all field operations and select headquarters functions. Following the shutdown, all those who were furloughed returned to work and everything resumed completely.”
The FBI and DOJ continued making some high-profile cases during the shutdown including the money laundering and trade-secret theft indictments of Chinese telecom manufacturer Huawei, which were announced Jan. 28—just two days after the shutdown ended.
FBIAA spokesman and Bracewell senior principal Paul Nathanson said on Monday, “I have not heard of any residual effects from the shutdown. We remain concerned about the possibility of another shutdown, specifically the impact on agents and their work.”
Nathanson also referred to a statement by FBIAA president Tom O’Connor at a news briefing during the shutdown, noting, “working with no pay is forcing more agents to consider leaving the FBI for the private sector. The loss of current and future agents creates a long-term problem that will reverberate throughout the FBI for years.”
Akerman partner Michael Kelly joined Paul in saying damage to the DOJ and the SEC might be worse than is readily apparent if the specter of more politically motivated shutdowns causes experienced government lawyers to throw in the towel on public service careers.
“Experienced career prosecutors play an important role at the Department of Justice. They are often brought in to handle some of the toughest cases, and they have to make very difficult judgment calls,” Kelly said. “If the Justice Department will be losing some of these prosecutors because they don’t want their pay held hostage to shutdowns, that is not a good development for anyone in the federal criminal justice system.”
He also said that the loss of a lead prosecutor will sometimes result in an investigation being scrapped if others in the government don’t share the same view of the case’s importance.
Paul urged the federal government to undertake a study in six months to track whether there is an exodus from the agencies or problems with recruitment in the shutdown’s aftermath.