SEC Releases Rule Proposal Addressing SPACs

The SEC released proposed rules covering “Special Purpose Acquisition Companies, Shell Companies, and Projections.” The rules, if adopted as proposed, would require enhanced disclosure and increase potential liability under the federal securities laws for shell companies and SPACs, and would subject target companies and investment banks participating in de-SPAC transactions to new disclosures. The proposed rules also provide updated guidance regarding the use of projections in SEC filings and propose a new safe harbor for SPACs under the 1940 Act.  SEC Chairman Gary Gensler touted the proposed rules stating, “investors deserve the protections they receive from traditional IPOs, with respect to information asymmetries, fraud, and conflicts, and when it comes to disclosure, marketing practices, gatekeepers, and issuers.” In her dissent, Commissioner Hester Peirce stated the proposed rules would require “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.” She added it is not up to the SEC to determine whether SPACs are good or bad as an investment, rather the Commission should rely on sponsor disclosure and investor appetite to determine the viability of a SPAC. In her statement, Peirce noted she could have supported “sensible disclosures around SPACs and de-SPACs.” The public comment period ends on the later of May 31 or 30 days following the publication of the proposing release in the Federal Register.