SPAC Disclosure Advertising and Gatekeeping in 2022

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We reported final yr that unprecedented SPAC deal quantity signaled an elevated threat for disputes given their distinctive construction, together with dangers related to disclosure necessities, materials private data, valuation, and conflicts of curiosity. Our evaluation proved prescient, because the SEC started to flex its enforcement muscle mass vis-à-vis SPACs because the yr progressed, and took particular discover of potential asymmetries between SPACs and conventional IPOs that will type the premise for disputes in 2022.

2021 was a report yr for SPACs.  In 2021, the Nasdaq had 613 SPAC listings, up from 248 in 2020 and simply 59 in 2019. These 613 listings raised $145 billion – a 91 % improve over the quantity raised in 2020 – and represented 59 % of complete new listings. Whereas the variety of all IPOs elevated by 88 % since 2020, SPACs elevated 150 % year-over-year.

And the place capital goes, disputes and regulators comply with. In April 2021 the SEC introduced a change in accounting remedy relevant to most SPAC warrants and signaled that filings and disclosures by SPACs and their personal targets can be the topic of elevated scrutiny in an in depth assertion by then Appearing Director, Division of Company Finance, John Coates. On the heels of those warnings, the SEC introduced its first main SPAC enforcement motion final summer season alleging that disclosures in a SPAC’s registration assertion and different public statements had been materially deceptive.

As 2021 got here to an in depth, SEC Chair Gary Gensler advised that SPAC buyers weren’t receiving the identical protections they might obtain in a standard IPO – that like circumstances weren’t being handled alike. Particularly, Chair Gensler famous the two-step construction of a SPAC transaction – an preliminary public fundraise, after which a “de-SPAC” merger with a goal – may create asymmetries with conventional IPOs:

  • There could also be conflicts between buyers who money out after the preliminary fundraise, and people who keep for the de-SPAC transaction;

  • There could also be disclosure disparities between the transaction steps, together with round how shares may change into diluted over time; and

  • The announcement of an acquisition goal could also be accompanied with fanfare that may prime the market, with out a full disclosure or proxy.

Put merely, regulators view SPACs as particular in objective solely – not exempt from conventional public-policy ideas that govern investor safety (viz. leveling out data asymmetries, guarding towards deceptive data and fraud, and mitigating conflicts). Chair Gensler has requested SEC workers to suggest new laws to align SPAC choices with conventional IPOs – to comply with Aristotle’s precept of treating like circumstances alike. Amongst different issues, because of this the safe-harbor exemption for forward-looking statements within the Personal Securities Litigation Reform Act (PSLRA) seemingly is not going to apply to de-SPAC transactions: whereas de-SPAC transactions aren’t technically IPOs (that are excluded from the PSLRA secure harbor), the dearth of established monitor report for a non-public firm combining with a SPAC, the logic goes, raises the identical issues that motivated excluding IPOs from the PSLRA safe-harbor within the first place.

After all, regulators aren’t alone in in search of to police SPACs. Chair Gensler’s remarks not solely counsel the place the SEC could also be headed within the coming yr, but additionally present a blueprint for potential personal plaintiffs to convey securities claims the place SPAC sponsors allegedly deal with both step of a SPAC transaction as one thing lower than it’s – an IPO.

Sponsors needs to be not simply vigilant, however proactive in assessing how their dealing with of both step of a SPAC transaction might be perceived as opposite to the ideas recognized by Chair Gensler. SPACs stay an revolutionary and environment friendly path to liquidity, however the “cop on the beat” has issued a transparent warning:  sponsors violate the traditional precept of treating “like for like” at their peril.

Learn extra of our High Ten Regulatory and Litigation Dangers for Personal Funds in 2022

Dorothy MurrayJoshua M. NewvilleTodd J. OhlmsSeetha RamachandranJonathan M. WeissJulia AlonzoJames AndersonJulia M. AnsanelliWilliam D. DalsenAdam L. DemingReut N. Samuels and Hena M. Vora contributed to this text.


© 2022 Proskauer Rose LLP.
Nationwide Regulation Evaluate, Quantity XII, Quantity 48



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