What New SEC Rules Do SPACs Have to Follow?
The Securities and Exchange Commission (SEC) recently adopted significant new rules and guidance for special purpose acquisition companies (SPACs). These new SEC rules aim to increase disclosures and strengthen investor protections in SPAC initial public offerings (IPOs) and de-SPAC transactions between SPACs and private operating companies.
Overview of the New SEC Rules for SPACs
The SEC rules adopt enhanced disclosure requirements, restrictions on projections, and guidance on underwriter liability and Investment Company Act status. The goal is to better align the rules for SPAC IPOs with those of traditional IPOs.
Specifically, the SEC adopted a new Subpart 1600 of Regulation S-K mandating certain disclosures about SPAC sponsors, potential conflicts of interest, and dilution. The rules also limit the use of projections in de-SPAC transactions. While the SEC did not issue concrete rules on underwriter liability or create a safe harbor under the Investment Company Act, it provided guidance on these issues.
Why Did the SEC Adopt These New SPAC Rules?
SPAC IPOs surged in 2020-2021 but concerns emerged about insufficient investor protections compared to traditional IPOs. The new SEC rules address these concerns amidst still significant, albeit declining, SPAC activity.
Specifically, the SEC aimed to improve disclosures so investors better understand SPAC sponsors, potential conflicts of interest, dilution implications, and the reliability of projections. The rules enhance investor protection in initial public offerings involving shell companies like SPACs.
Key Aspects of the New SEC Rules
Enhanced Disclosure Requirements
The new Subpart 1600 of Regulation S-K requires SPACs to make disclosures about sponsors, conflicts of interest, and dilution not previously mandated. For example, SPACs must now disclose arrangements between sponsors and the SPAC regarding whether to proceed with a de-SPAC.
In de-SPAC transactions, target companies are now co-registrants, and disclosures in proxy statements are expanded. This aims to better inform investors.
Restrictions on Use of Projections
The rules limit the use of projections in de-SPAC transactions. Any projections must have a reasonable basis and third-party review. This attempts to curb overly optimistic projections.
Underwriter Liability and Investment Company Act Guidance
Rather than firm rules, the SEC provided guidance on these topics. The guidance discusses factors relevant to underwriter status and Investment Company Act status for SPACs.
Impact on SPAC Sponsors and Participants
The new rules will increase compliance burdens for SPAC sponsors and participants. Some SPAC activity, especially smaller SPACs, may be deterred.
SPAC sponsors and participants will need to re-evaluate disclosures, projections, timelines, and more. However, the full impact remains to be seen as the rules take effect after publication in the Federal Register.
Contact An Experienced Securities Lawyers Today
While not formal rules, this guidance alerts SPACs to areas the SEC will scrutinize closely. SPACs would be wise to adhere to the SEC’s positions on these topics.
The compliance professionals at My RIA Lawyer stay on top of the evolving rules for SPACs and other securities regulations. Their experienced team helps ensure your firm complies with all requirements while pursuing its business objectives. Don’t leave anything to chance. Contact My RIA Lawyer today or visit https://www.myrialawyer.com/contact-us/ to schedule a consultation. They provide clarity on confusing regulations so you can focus on your clients and growing your firm.