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After last week’s bipartisan vote in the Senate, where H.J. Res 109 passed by a vote of 60-38 (with 2 members not voting) and support from 11 Democrats, 1 Independent, and 48 Republicans, repeal of the U.S. Securities and Exchange Commission’s Staff Accounting Bulletin (SAB) 121 is now on President Biden’s desk. He has a decision to make by May 28th, which is the 10-day deadline excluding Sundays. Here are the potential scenarios:

Veto

The President can veto the Joint Resolution as he indicated he would in a Statement of Administration Policy (SAP) on May 8th. A veto would effectively end the congressional effort to nullify SAB 121, as Congress likely does not have the votes to override the veto, which requires a two-thirds majority in each chamber.

Sign the Joint Resolution

President Biden can sign the Joint Resolution into law, nullifying the SEC’s SAB 121 and preventing the SEC from issuing a similar rule in the future.

Do Nothing

President Biden can choose to do nothing and let the 10 days lapse without signing or vetoing the Joint Resolution. This is where it gets tricky:

  • If Congress is in session, the President’s inaction will mean that the bill is effectively signed into law, nullifying SAB 121.
  • If Congress is not in session, the bill could face a pocket veto, where the President’s inaction prevents the bill from becoming law.

Analysis

The outcome remains uncertain. There is precedent for a President backtracking on a veto threat issued in a SAP and ultimately signing the bill into law. Under President Obama, four bills that received a presidential veto threat in a SAP were ultimately signed by him.

Despite May 28th falling during a congressional recess week for Memorial Day, Congress is likely to remain in session through pro-forma sessions, even if they are expected to be away from Washington, DC on Memorial Day recess. Pro-forma sessions are brief meetings that can prevent a pocket veto by keeping Congress technically in session. As either House can call a pro forma session, a pocket veto is unlikely. 

We should know the outcome soon. Supporters of the Resolution, particularly Democrats, have been increasing pressure on SEC Chair Gary Gensler to withdraw SAB 121 to avoid forcing the President to make a decision. While the SEC has been resistant to backtracking on crypto policy actions, they have succumbed to pressure in the past (e.g., Bitcoin Spot ETPs). 

The next few days will be very interesting to watch.