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Government Accountability Office Finds SEC Mishandled Staff Accounting Bulletin 121

The Government Accountability Office (GAO) has determined that the Securities and Exchange Commission (SEC) erred in its handling of ÔÇ£Staff Accounting Bulletin 121ÔÇØ (SAB 121) by failing to submit it to Congress as is required for official rules.

In a report titled ÔÇ£Securities and Exchange CommissionÔÇöApplicability of the Congressional Review Act to Staff Accounting Bulletin No. 121,ÔÇØ released on October 31, the Government Accountability Office (GAO) has determined that the U.S. Securities and Exchange Commission (SEC) overstepped its bounds when issuing the controversial ÔÇ£Staff Accounting Bulletin 121ÔÇØ (SAB 121).

The GAO contends that Congress should have been given the opportunity to review it.

The GAO argues that the SEC did not comply with the Congressional Review Act (CRA) by failing to submit a report to Congress or the Comptroller General regarding the Bulletin. The GAO further highlights that the 2022 guidance, viewed by the industry as potentially impacting crypto investorsÔÇÖ ability to secure safe harbors for their assets, should have been treated as a formal rule.

Despite this determination, the GAOÔÇÖs finding does not directly alter the ongoing nonbinding status of the Bulletin as outlined by the SEC.

The Congressional Review Act mandates that before a rule can take effect, an agency must furnish a report on the rule to both the House of Representatives and the Senate, in addition to the Comptroller General. If Congress chooses to disapprove of the rule, the CRA provides procedures for review and potential rejection.

It is anticipated that the Bulletin will now undergo congressional review. The exact details of this process are yet to be clarified. Under the Congressional Review Act, lawmakers have a specified period to potentially reject a new federal rule once it has been submitted for review.

In response to the GAOÔÇÖs opinion, the SEC stated, ÔÇ£The GAO opinion expresses its view that SAB 121 is a ÔÇÿruleÔÇÖ for purposes of the CRA. The opinion does not otherwise affect the status of SAB 121.ÔÇØ

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