The Securities and Exchange Commission (SEC) adopted new rules and amendments this week that would impact initial public offerings (IPOs) by special purpose acquisition companies (SPACs).
SPAC IPOs and de-SPAC transactions can be used by private companies to enter the public markets. The new rules and amendments seek to enhance investor protection in these transactions. Specifically, they call for enhanced disclosures about conflicts of interest, SPAC sponsor compensation, dilution, and other information that is important to investors in SPAC IPOs and de-SPAC transactions.
Further, they would require registrants to provide additional information about the target company to investors that will help investors make more informed voting and investment decisions in connection with a de-SPAC transaction.
The SEC said the rules more closely align the required disclosures and legal liabilities that may be incurred in traditional IPOs.
“Just because a company uses an alternative method to go public does not mean that its investors are any less deserving of time-tested investor protections,” SEC Chair Gary Gensler said. “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.”
As an example, in certain situations, the rules require the target company to sign a registration statement filed by a SPAC (or another shell company) in connection with a de-SPAC transaction. This would make the target company a “co-registrant” and assume responsibility for disclosures in that registration statement.
In addition, the rules make the Private Securities Litigation Reform Act of 1995 safe harbor from liability for forward-looking statements unavailable to certain blank check companies, including SPACs.
The rules will become effective 125 days after publication in the Federal Register. Compliance with the structured data requirements will be required 490 days after publication of the rules in the Federal Register.