Tag: financial projections

SEC adopts new rules on SPACs—just investor protection or will it spell the demise of SPACs?

Recently, SPACs seem to have lost much of their allure, but why?  Certainly there are multiple reasons related to the capital markets, but one reason may have been the anxiety of many SPAC proponents precipitated by the proposal that the SEC advanced in 2022 to regulate SPAC and de-SPAC disclosure and liability. Commissioner Hester Peirce, who had dissented on even issuing the proposal, remarked at the time that the proposal “seem[ed] designed to stop SPACs in their tracks.”  Yesterday, the SEC voted, three to two, to adopt those rules, with some changes.  The new rules and amendments will affect SPACs, shell companies and the use of projections in SEC filings.  The SEC is also issuing new guidance addressing potential underwriters in de-SPAC transactions, as well as the status of SPACs under the Investment Company Act of 1940 (in lieu of adopting a proposed rule).  According to Gensler, “Today’s adoption will help ensure that the rules for SPACs are substantially aligned with those of traditional IPOs, enhancing investor protection through three areas: disclosure, use of projections, and issuer obligations. Taken together, these steps will help protect investors by addressing information asymmetries, misleading information, and conflicts of interest in SPAC and de-SPAC transactions.” Peirce and Commissioner Mark Uyeda dissented, in essence, viewing the new rules as “merit regulation” and overkill, with the emphasis on “kill”—that is, as Peirce commented, the “regulatory reaper came for SPACs and seems to have won.” Similarly, Uyeda remarked that, with the current SPAC market just “a shell of its former self,” the new rules show that the SEC “intends to never let them return.”  The final rules will become effective 125 days after publication in the Federal Register, except that compliance with the requirement to use inline XBRL will not be mandatory until 490 days after publication in Federal Register.