Calibrate SPACs…or Stop in Their Tracks? SEC Proposes Rules to Enhance Disclosure Relating to SPACs

SEC Commissioner Hester M. Pierce previously argued, “We should be using the moment to ask whether the SPAC revival of recent years reveals shortcoming with the traditional IPO process and to consider ways to calibrate properly the rules governing IPOs, SPACs, and Direct Listings." This week, the U.S. Securities and Exchange Commission (SEC) proposed new rules and amendments regarding initial public offerings by special purpose acquisition companies (SPACs) and business combination transactions involving shell companies, such as SPACs, and private operating companies. 

The changes would require additional disclosures about SPAC sponsors, conflicts of interest, and sources of dilution; as well as business combination transactions between SPACs and private operating companies, and disclosures relating to the fairness of all these transactions.

The proposed new rules would also address issues relating to projections made by SPACs and their target companies, as well as amend safe harbor rules which would cover forward-looking statements under the Private Securities Litigation Reform Act.

According to SEC Chair Gary Gensler, “The new rules lodged against SPACs ensure that investors in these vehicles get protections similar to those when investing in traditional initial public offerings.”

In a lengthy response to the proposed new rules, Hester M. Pierce responded, “The proposal — rather than simply mandating sensible disclosures around SPACs and de-SPACs, something I would have supported — seems designed to stop SPACs in their tracks.”

She added, “Today’s proposal does more than mandate disclosures that would enhance investor understanding. It imposes a set of substantive burdens that seems designed to damn, diminish, and discourage SPACs because we do not like them, rather than elucidate them so that investors can decide whether they like them.”

Over the next 60 days or more, the SEC will take public comments on the proposed rule and work to finalize. DFIN will monitor comments closely, as well as any final rules or amendments.

As always, DFIN supports regulations to protect investors and believes SPACs are a viable vehicle for companies to go public and hopes through the comment period, “calibrated, “sensible,” and “balanced” describe the changes that will create healthy new rules to increase the number of public companies in the U.S.