SEC tightens the screws on SPACs

The once-hot U.S. SPAC market has cooled considerably, but transactions involving special purpose acquisition companies (SPACs) will soon face tougher investor protections under new rules adopted by the U.S. Securities and Exchange Commission (SEC) Wednesday.

The SEC approved reforms that aim to beef up the disclosure required in SPAC IPO transactions and de-SPAC transactions, which occur when SPACs acquire operating companies.

“The new rules and amendments require, among other things, enhanced disclosures about conflicts of interest, SPAC sponsor compensation, dilution and other information that is important to investors,” the regulator said in a release.

The reforms also enhance the information investors receive about target companies in de-SPAC transactions, which aims to help investors make more informed voting and investing decisions.

“The rules more closely align the required disclosures and legal liabilities that may be incurred in de-SPAC transactions with those in traditional IPOs,” the SEC said, adding that the rules also expand regulatory guidance on the use of forecasts in all SEC filings.

“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,” said SEC chair Gary Gensler in a release. “Today’s adoption will help ensure that the rules for SPACs are substantially aligned with those of traditional IPOs.”

SEC commissioner Mark Uyeda, who voted against the proposals, said the rules reflect the SEC’s desire to effectively kill SPAC transactions in the wake of their popularity in 2020 and 2021.

The rule changes impose “rigorous and expansive requirements from nearly every corner of the federal securities laws on SPACs, its IPOs, and any related de-SPAC transaction,” Uyeda said. “This approach may have the effect of discouraging people from forming SPACs or private companies from engaging in a de-SPAC transaction as a way of becoming a reporting company. Over the long term, this may result in fewer opportunities for companies to access our public markets and fewer opportunities for people to make investments.”

The new rules become effective 125 days after publication in the Federal Register.

James Langton

James is a senior reporter for Advisor.ca and its sister publication, Investment Executive. He has been reporting on regulation, securities law, industry news and more since 1994.